Most investors know the famous Buffett saying that the best way to get rich is to “be greedy when others are fearful”. That means that deep value investing, buying stocks that the Wall Street absolutely hates, can be a great way to generate market-crushing returns over time.
Well, right now few stocks are more hated than GE, which has seen shares plunge 76% in the past 18 months from its mid-2016 highs. The company now trades at levels not seen since the darkest days of the Financial crisis.
Given GE’s storied 126 year history, some deep value investors might be tempted to buy this stock purely as a “cigar butt” investment. However, I strongly caution against that, because while GE is certainly cheap now, I fear it might fall much lower. In fact, there are three reasons why I won’t touch GE…at any price and recommend you do the same.
To quote the Oracle of Omaha once more “it’s better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
In today’s market there are plenty of great quality companies trading at not just fair prices, but firesale valuations. Meanwhile, GE isn’t close to being a “fair” company but is a toxic collection of shrinking assets and a mountain of liabilities that might potentially decline much lower.