After my column yesterday, I guess one could say I have the seven-year itch. Seven years of writing for Real Money has made me understand the value of real research. I used to perform that task for big Wall Street banks, but one might think that many years of technological advancements since those halcyon days would have rendered that analysis moot. A quick trip through Google shows that isn't the case. Much like Tom Ewell's Richard Sherman in Billy Wilder's Seven Year Itch, I dream of a bouquet of freely available web-based articles that enlighten the reader as much as the moviegoer was enlightened by the image of Marilyn Monroe standing atop a subway grate in the movie.
Well, real life is not the movies.
Frankly, most of what is foisted on the individual investor via some web-based financial sites is absolute poppycock. Exhibit A has to be General Electric (GE) , as the stock sits at a 29-year low today. As I am measuring things in seven year increments owing to my RM anniversary, the most salient point is that on May 17th, 2013, GE stock closed at $23.46. As of this writing, it is quoted at $5.50.
But what are the Google headlines:
Motley Fool "Could GE Be A Millionaire Maker Stock?" If you buy 200,000 shares, maybe.
Barron's "GE Stock Closes At Its Lowest Level Since 1991. Here's What's Wrong." What's wrong? Good lord, do these people not have access to stock charts?
GE's problem can be summarized in one sentence: The company is burning cash. Hence, other things equal, the company -- and its stock -- should be worth less every day that passes. While that is not true of some Nasdaq darlings, the market's consistent punishment of GE shares over the past decade shows that there is some efficiency left in the U.S. stock markets.
GE's number one business segment is spare parts. For airplanes. But almost nobody is flying them now. Simple analysis, and a simply awful backdrop for GE.
This segment, styled by GE as Aviation Services, posted an 8% decline in revenues in the first quarter to $4.449 billion. That headline decline masked internals that are, frankly, staggeringly bad. At the time of GE management's first quarter earnings presentation, shop visits were trending down 60% year-on-year and billings down 50% year-on-year for Aviation Services.
While no one could have anticipated the economic depredation from Covid-19, anyone should be able to see that it is happening. The folks who had the temerity to walk into a J.C. Penney (JCP) five years ago and note that there was no one there, and there was inventory scattered all over the floor, are surely basking in the glow today of that retailer's seemingly imminent bankruptcy filing. There is value in pointing out the obvious. I just can't believe how often the market doesn't do so.
But, to be fair, Mr. Market has been dead right on GE. To shore up its balance sheet, GE finalized the sale of its Biopharma division for $20 billion on March 31st of this year. That was probably the worst time in human history to sell a business that focuses on therapeutics -- look at a stock chart of Moderna (MRNA) , Arcturus Therapeutics (ARCT) or Gilead (GILD) if you don't believe me -- but, hey, this is GE we are talking about.
Many feted the hiring of Larry Culp as GE's CEO on October 1, 2018, but 20 months later GE shareholders are 58% poorer and the dividend has been cut to next-to-nothing. GE's Industrial business burned through $2.2 billion of cash in the first quarter of 2020, and I just don't see any change to that negative narrative.
If you can see an inflection point in GE's cash burn then by all means you should buy the stock. In that case you should also drop a copy of your CV to my firm because we need those with high-level predictive ability. If you can't see an end to GE's pain then just point your browser to a different page and stop reading articles -- except this one, of course -- about a company that is dying before our eyes.