when to buy GE

[erkevin]

EEk! Opened down 3.5%

 

[Nemo2]

EEk! Opened down 3.5%

From TD Waterhouse.

Jan 16 (Reuters) - General Electric Co will take a $6.2 billion charge in its fourth quarter results for a more than decade-old insurance portfolio covering long-term healthcare costs, the company said on Tuesday.

GE, whose shares sank 3.7 percent in premarket on the news, said the charge would rise to $7.5 billion when adjusted for Congress' newly-passed cut in corporate tax rates to 21 percent.

The company also said its GE Capital unit was now expected to make statutory reserve contributions - which insurers must hold against potential losses - of about $15 billion over seven years.

To fund the contributions, GE Capital will be suspending its dividend to the parent company for the "foreseeable future".

 

[athena53]

Keep in mind that, with decreasing corporate tax rates starting in 2018, Q4 2017 was a good time for GE to re-assess its liabilities. I believe a few major banks also took charges against earnings in Q4 due to increasing their reserves for bad loans. There's always a range around possible values for insurance reserves and bad loan reserves and it wouldn't surprise me if companies chose to be more conservative in their assumptions for their Q4 results.

I worked for a GE sub in the property-casulaty insurance business that they sold 10+ years ago. The acquiring company wanted nothing to do with the LTC business so GE kept it.

 

[bobandsherry]

Analysts were talking about GE and that the 2018 tax reduction puts GE in a worse position. GE is one of the Dogs of the Dow and may be poised for bounce in 2018, but I'm steering clear for now. I think it can go below $16 and may test $15, but I've been on wrong side of bet before.

Still sticking to this....^^^

 

[Running_Man]

Keep in mind that, with decreasing corporate tax rates starting in 2018, Q4 2017 was a good time for GE to re-assess its liabilities. I believe a few major banks also took charges against earnings in Q4 due to increasing their reserves for bad loans. There's always a range around possible values for insurance reserves and bad loan reserves and it wouldn't surprise me if companies chose to be more conservative in their assumptions for their Q4 results.

I worked for a GE sub in the property-casualty insurance business that they sold 10+ years ago. The acquiring company wanted nothing to do with the LTC business so GE kept it.

In general losses on accruals are only allowed for tax purposes when actually incurred, it is only GAAP that allows deductions for financials purposes but that is usually one of the items on deferred taxes. On financial rules and as a result of 2007-2009 I am sure there were many tax laws put in place to help banks so I am not sure of banking tax laws but only of general tax practices. But one of my favorite videos involving General Electric and pretty much how I think of them (and their multi-billion dollar loss on insurance claims on products) was encapsulated by Hugh Jackman: "one would assume that the General of Electric might take pride in his creations instead of foisting them to an unsuspecting public"

So much for the Dogs of the Dow rally for GE it is now below it's starting point for the year and I suspect you will see a major cut in the already lowered dividend soon as there is no actual cash that the General of Electric is earning at the present time and it appears the 4th quarter was not that good.

 

[NYEXPAT]

Guess we should be talking about how much of our money will we get back when they sell everything in a couple of months or spin it off?

 

[nerdyJON]

Unfortunately and fortunately, I bought back in the day at $18, sold at $30ish and then just recently bought back in before the news broke.

Depending on what they do with the spinoffs, it may have HUGE upside. Look at ABBOTT and ABBVIE, BAXTER and BAXALTA. Once the spinoffs happened, the base business took off since they could focus on profit and focus on the core businesses separately.

When I invest, I look at the CEO and board. Seems like the new CEO is finally taking ownership for the company and thankfully was raised during the Jack Welch era.

 

[athena53]

When I invest, I look at the CEO and board. Seems like the new CEO is finally taking ownership for the company and thankfully was raised during the Jack Welch era.

I agree- I'm impressed with what I see so far. I keep waiting for a market correction so I can get GE a little cheaper but that hasn't happened yet.

Not that I'm complaining.

 

[bobandsherry]

Unfortunately and fortunately, I bought back in the day at $18, sold at $30ish and then just recently bought back in before the news broke.

Depending on what they do with the spinoffs, it may have HUGE upside. Look at ABBOTT and ABBVIE, BAXTER and BAXALTA. Once the spinoffs happened, the base business took off since they could focus on profit and focus on the core businesses separately.

When I invest, I look at the CEO and board. Seems like the new CEO is finally taking ownership for the company and thankfully was raised during the Jack Welch era.

Estimates on value of the parts has indicated they are worth less than the whole, one as low as $13. Huge pension liability remains outstanding.

CEO may maximize the value, doesn't mean it will be more than what market currently values.

 

[athena53]

I was thinking of buying in on a market drop and then read about their unfunded pension liabilities. I'm a beneficiary of that pension, to the tune of $900/month, no COLA (short stay at a GE sub before it was sold). Oops.

I think I'll pass on the stock.

 

[Running_Man]

This is an interesting comment, what growth can be seen for GE when the CEO says they will have negative growth. If you mean value of the underlying assets perhaps I could understand that but there will be no growth in financial performance for a couple of years.



Let’s look at what they are saying: we will have 6-7 billion of cash flow, 4.2 billion will be for dividends and 3 billion for share buybacks, meaning they will utilize 100% of cash flow for those two financial gerrymandering which does zero for growth of the business. Additionally they will BORROW to pay their pension expenses, note one could also look and say they are borrowing to pay their dividend, but semantically let’s give them a break. They will be exiting businesses and have overcapacity issues.

How is this ANY different than what they have done for the past years, it is not, it is a downsizing of the previous strategy because cash flow has been cut in half and for anyone looking for this to work you are praying a subpar management team can find value with no funds with which to fix the actual business, a recipe for disaster. While GE as a business is probably worth 15-18 per share with this plan it would need to be near 12 to be a decent value because management is slowly destroying all it’s money making revenues by increasing debt while shrinking assets

I will stand by this statement of 2 months ago and say until GE gets to 12 the value is not worthwhile and breaking up the company only accelerates the dive to 12. The strategy they hold is bizarre to me. The pension was underfunded by 31 billion and now they announce their long term care is underfunded by 15 billion.
Iconic GE could break itself apart as cash crisis deepens - Jan. 16, 2018

The key sentence in the article which, like me is wondering what the heck GE is thinking of is "The only way a breakup makes sense, Khanna said, is if GE fears it's worth even less kept intact because its businesses are in decline."

What noone is saying is the corporate claim of bringing value to shareholders by buying shares does not work if by doing so you let the business die by not investing and funding liabilities properly as GE has done. Spending 3 billion by borrowing on share buybacks when you have 45 billion to fund and decreasing cash from operations is beyond stupid. At some point corporate speak is just drivel and if they continue on this road GE will get broken up, investors get 12 bucks and they will call it a success because of a 20% rise from 10.

 

[nerdyJON]

Sold my shares at $17 for a loss just to wait until it drops.

Interesting couple months ahead.

 

[Shanky]

In today at $16.25 I was planning on waiting for $8, but the plummet seems to have stalled for a bit. Hopefully I will be out at $18 and back in at $8.

 

[Dash man]

I’ve never been one to try to catch a falling knife. Too many good companies out there.

 

[FIREmenow]

I’ve never been one to try to catch a falling knife. Too many good companies out there.

Yeah. Kind of like cliff-diving - how do you know if you are good at that?

 

[Shanky]

I learned a hard lesson with Lucent. Bought at $20, then $10, then $5. When I had enough, around 67 cents, I sold. The next day, insider buying by the new CEO was made public and it went up substantially. I literally caught a falling knife three times and then sold within a penny of the all time low. Next time I ride all the way to the bottom!

I still loath Rich McGinn, who I unfortunately met in person a couple years before the debacle. Come to think about it, I am not much of an Welch / Immelt fan either.

 

[athena53]

This article is really consistent with my experience working for another GE insurance subsidiary.

https://www.msn.com/en-us/money/com...ortfall-was-14-years-in-the-making/ar-AAv9m4V

Summary: they spun off Genworth, the LTC business, but had to provide reinsurance on the existing business to get a good price (basically agreeing to cover a portion of any reserve inadequacies that emerged). That reinsurance liability remained on the books of GE's insurance unit and if they sold the reinsurance unit they'd have had to own up to inadequate reserves after any prospective buyer did their own evaluation- so they kept it.

It was my experience that Immelt and his ilk booked the lowest reserve estimate they could browbeat an actuary into certifying. One exasperated colleague said to me, "I just keep telling them, 'you can pay me now or you can pay me later'". Sure enough, when my unit was sold, the buyer slashed the offering price after doing it sown evaluation of the reserves.

I guess the time is "now" for the LTC liabilities.

 

[erkevin]

Serious discussion on GE being dropped from the DOW. Also speculation on the break-up price being around $11 per share....double ouch

 

[bobandsherry]

Analysts were talking about GE and that the 2018 tax reduction puts GE in a worse position. GE is one of the Dogs of the Dow and may be poised for bounce in 2018, but I'm steering clear for now. I think it can go below $16 and may test $15, but I've been on wrong side of bet before.

GE stock just continues to make this call (end of December) more and more plausible.

 

[Turboslacker]

Wow, just wow. Proves once again that no company is entitled to remain in business long term and be profitable. Also something I think about as a Boeing employee and shareholder.

 

[NW-Bound]

...Come to think about it, I am not much of an Welch / Immelt fan either.

I was never a fan of Welch. Back in 2000, he was regarded as a hero and model CEO. He got GE into financial business instead of staying an industrial company, and that sowed the seeds of destruction.

Back in 1999, Welch said “my success will be determined by how well my successor grows it in the next 20 years.” The verdict is now in.

 

[audreyh1]

I was never a fan of Welch. Back in 2000, he was regarded as a hero and model CEO. He got GE into financial business instead of staying an industrial company, and that sowed the seeds of destruction.

Back in 1999, Welch said “my success will be determined by how well my successor grows it in the next 20 years.” The verdict is now in.

Yep!

 

[Totoro]

From my perspective he listened to the McKinsey songs a bit too much. That got him into the financial part I believe. And he took the LEAN thing too far, outside areas and applications where it fits great.

Easy to say from my armchair obviously, and hard to assess how well he actually did in the end vs. what other people would have done.

 

[Shanky]

In today at $16.25 I was planning on waiting for $8, but the plummet seems to have stalled for a bit. Hopefully I will be out at $18 and back in at $8.

I should have waited for $8

 

[athena53]

From my perspective he listened to the McKinsey songs a bit too much. That got him into the financial part I believe. And he took the LEAN thing too far, outside areas and applications where it fits great.

I agree on Six Sigma and its variants. The people who understood insurance and were also Six Sigma black belts were fantastic. The ones who didn't understand insurance were sometimes comical and sometimes made very bad decisions. One project concluded that we should insure smaller properties because they had a lower average loss. Another came to the brilliant conclusion that loss amounts were not normally distributed. (Any actuary could have told them that, typically, the logarithms of the losses ARE normally distributed.)

I got through Green Belt training but just could not find an insurance-related problem that honestly made sense for a Green Belt project.