Editor's Note: Jim Cramer's column runs exclusively on RealMoney.com; this is a special free look at his column. For a free trial subscription to RealMoney.com, click here. This article was published Jan. 24 on RealMoney. If Steve Galbraith is right, I may have to sell my General Electric (GE) - Get Report.
Galbraith, the supersmart chief U.S. equity strategist at Morgan Stanley, the guy I keep telling you about who has made me more money than any other analyst alive, talked to us on
"America Now" last night and made it clear that people want earnings and dividends and easy-to-understand stories.
He made the point that people also will look to cash flow, which is General Electric's strength -- and cash flow doesn't lie.
But then he said something that took my breath away. He said people will look at
and ask whether it's a car company or a financing company.
And that is where General Electric is going to get hurt as a stock. GE is most definitely a financing company. Most of its earnings come from financing, not from appliances or medical devices or turbines.
I don't think people want that anymore. I know they didn't want it in
, which was also boosting that division. Too many opportunities to make money in ways that aren't simple.
Of course, if General Electric can break it out, maybe some of the larger mutual funds will understand it and not sell the company. And if management is really honest and transparent about the profits in finance, there is always a chance that the Street won't revolt.
But I think that the takeaway from
is "if you make your money in some way other than a traditional understandable way, we will pay less for your company than we used to."
Which means GE will be under pressure for a very long time.
Why believe Galbraith? He started out as a food analyst, the easiest-to-understand group in the universe. He then moved on to financial services, the hardest group to understand. He knows sectors. He knows earnings. He knows how to read annuals and quarterlies and 10-Q statements.
More important, he knows the psychology of the buy side: what money managers will and won't do when confronted with new pieces of data that scare them.
They sell the complex and buy the simple.
For me, I'm not willing to give up on General Electric yet. Jeffrey Immelt, the CEO, is the rare bird who understands this stuff. I think he can make the case for his company in this new environment. The problem is, will he have to do so every day of the week just to keep the stock where it is?
James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. At the time of publication, Cramer was long General Electric, Tyco and Morgan Stanley Dean Witter.
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