Dumpster Diving for GE? Not Yet

 | Jul 05, 2018 | 10:00 AM EDT
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As a deep value investor, I often end up buying names that few other investors want to own, at least at the time I may be buying. This does not mean buying everything that's suffered a massive price decline, because clearly, some names are deserving of that fate, and it does not make them cheap. The tough part is separating the wheat from the chaff; those companies that are mispriced and have been overly punished versus those that have been re-priced lower, and deservedly so.

I much prefer smaller, more underfollowed names in these situations. With less analyst and media coverage, they are not as picked over as the larger names, and markets are less efficient. You can still discover a potential hidden gem before many others do, and the rewards can be well worth the work it takes to turn over enough rocks to find an interesting situation.

I am less inclined to jump into a larger name that is in distress. There's an inclination to judge value by a large price decline in these situations, yet markets, I believe are simply more efficient with the large, household names.

The granddaddy of them all now has to be General Electric (GE) , which was recently dumped from the DJIA, after a 111 consecutive year run as a member. The stock has been cut in half over the past year, and the dividend itself was halved last September. GE now yields what may appear to be a compelling 3.6%; but I would not be surprised if there's another dividend cut on the horizon, and if you believe that's a possibility, the current yield is meaningless.

I believe there's a good enough possibility that GE shares fall further, that I, the sometimes bottom fisher, or dumpster diver, am avoiding the stock at these levels. The proposed asset sales and divestitures we've heard about (and there may be more) put a little wind in the stock at least temporarily upon announcement, but the stock may have further to fall. I'm not sure there's been a full capitulation here yet.

While GE's market cap has been cut in half over the past year, the company still has a mountain of debt, along with a massively underfunded pension. As the company sheds assets, it will likely cut debt levels, but it's too early to tell what the scaled down, "leaner and meaner" GE might look like.

There's value here at some level, but it's simply too early in my view. I am letting the dust settle, letting the debate on GE play out, and am happy to watch from the sidelines for now.

This is one of the most picked over stories you will find these days, and there are plenty of opinions on both sides of the argument.



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