GE Stock Worth Just $2, Says Longtime Bear Charles Ortel
>>>I am still in my GE short. Guy says most analysts aren't looking at the rancid CRE. Industrial side has declining cash flow. Too much debt. Should go to Buffett for $25 billion. GE also under two SEC investigations. SEC investigating while FDIC been bailing out???<<<
Posted Jul 08, 2009 07:01am EDT by Aaron Task in Investing
Related: GE, XLF, ^dji, ^gspc, SPY, DIA
If 2008 hadn’t been the year of Wall Street’s Armageddon, it might have been remembered as the year General Electric was revealed to be a financial company masquerading as an industrial conglomerate.
Like most banks and Wall Street firms, GE’s financial unit, GE Capital, was pummeled by the credit crunch, arguably threatening the venerable company’s survival.
Like other financial firms, GE weathered the storm, thanks in part to the government’s bailouts – last November GE Capital was declared eligible for TARP funds, thanks to its ownership of a small S&L in Utah. To date, GE Capital has issued about $80 billion of FDIC-insured debt through the Temporary Liquidity Guarantee Program, or TLGP, The Washington Post reports.
But GE is far from out of the woods, according to Charles Ortel, managing director of Newport Value Partners, an independent research firm. As of March 31, GE had $470 billion of debt vs. just $2.8 billion of tangible common equity, he notes.
Because of that high debt-to-equity ratio and a slowdown in its industrial businesses, “we only see downside” for the stock, says Ortel, who believes $2 represents fair value for GE common, which closed Tuesday just above $11.
When GE reports results on July 17, Ortel expects a "tough discussion over their numbers," predicting GE Capital's second-quarter results will be better than feared but the industrial side of the business will be worse than expected.
"I would not want to have [Jeffrey] Immelt’s job in the next few weeks trying to figure out how to explain where he is," Ortel says.
Two items worth noting here:
* Ortel first made a bearish call on GE’s stock (and a bullish one on its credit default swaps) back in August 2007, long before problems at GE Capital were evident to most investors.
* Neither Ortel nor his firm have positions in GE stock, but their research is sold to hedge fund managers and other institutional investors who very well might. |
