GE is a conglomerate 60% industrial, 40% financial that trades at an equal or even premium valuation to many "pure" industrials. With a conglomerate, I would like to see a discount to the sum or parts, bit with GE, there is no discount. I could buy an industrial like Siemens and a financial like JPM and would (assuming I'd put 60% in SI and 40% in JPM) I would have higher earnings power and about same dividend yield. There is no reason to own an stock like this, unless you get a discount to the sum or parts, like you typically get with conglomerates. As I see it, with GE, you take tail risk, without getting paid for it.
The tail risk is of course with GE financial, which relies on wholesale funding (and if this is not available on support from the Fed like in fall 2008) to support fairly illiquid assets (think storage containers on construction sites, leases etc.). Great business model as long as it works, not so great if it doesn't |
