Taking a Closer Look at General Electric
In 1896, when Charles Dow co-created the Dow Jones Industrial Average, General Electric (GE) was one of the twelve stocks initially included in the index. Of those twelve, GE is the only company that maintains its original name.
For years, the General Electric name has been synonymous with diversification. GE had its finger in every pie, from jet engines to healthcare to financial services.
But by building itself into a massive conglomerate, GE got away from its core competency. The company's financial arm, GE Capital, incurred massive losses during the financial crisis over a decade ago.
The good news is, the company is slimming down. Gone are Biopharma, sold to Danaher (DHR) for $20 billion, and Baker Hughes, GE's former oil and gas subsidiary.
Does that mean it's time to buy the stock? Let's go to the charts to find out.
The S&P 500, in blue, was rocked in March, but is now positive for the year. GE, in red, also got slammed in March, but has failed to recover along with the rest of the market. The S&P 500 is within shouting distance of its all-time high, but GE is down a whopping 40% year-to-date.
There are those who will say that GE is cheap. The stock closed at an ungodly $6.66 on Friday, but in the stock market, low price does not always equal high value.
There are a variety of fundamental metrics that we could consider to determine if GE is under-priced. Instead of doing that, let's look at the chart one more time.
Institutions have been buying stocks hand over fist since March, but have abstained from buying GE. Financial institutions do their homework; when they shun a so-called "blue chip" company in this manner, you can be sure there's a good reason behind it.
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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.