GE’s Troubles Are Far From Over
Deep value investing, which I’m a big fan of, is based on a core idea that “it’s always darkest before the dawn”. However, there’s another famous saying that value investors need to remember “it’s always darkest before things go totally black”.
Good value investing is about finding quality businesses with good assets, run by skilled management teams that are experiencing short-term troubles that are eventually surmountable. GE’s troubles are legion and include continued toxic asset liabilities from the days when GE Capital took part in the sub-prime mortgage debacle. That’s why in January it was forced to declare a $6.2 billion tax charge pertaining to the insurance business it no longer owns.
Worse still the company has $115 billion in total liabilities including a $30 billion underfunded pension that is the largest in Corporate America. This has forced management to undertake drastic and desperate moves to shore up the balance sheet. That includes selling off numerous assets including 20% of GE Healthcare and spinning off that division, one of the two crown jewels it owns, in 2019. That’s so that GE can unload $18 billion in debt and pension liabilities onto GE healthcare and thus slightly improve its financial standing. Back In June GE said it wanted to cut its debt by $25 billion by 2020 and was looking at potentially $60 billion in possible asset sales.
New management just pulled the trigger on one of those with the desperate deal it struck with Baker Hughes, a GE Company. Back in mid-2017, when GE bought Baker, it agreed to not sell any shares for two years. The two companies have just changed that agreement so that GE can sell 25% of its stake in the company (partially back to Baker) to raise $4 billion in a hurry.
BAKER HUGHES, A GE COMPANY STOCK PERFORMANCE, DATA BY YCHARTS.
About the Author: Adam Galas
Adam has spent years as a writer for The Motley Fool, Simply Safe Dividends, Seeking Alpha, and Dividend Sensei. His goal is to help people learn how to harness the power of dividend growth investing. Learn more about Adam’s background, along with links to his most recent articles. More...
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