In the past 26 years, General Electric (NYSE:GE) shareholders have seen GE stock trade below $7 on just three occasions: December 1992, February 2009, and March 2020.
Recently, I read a Rolling Stone article about how the employees working at GE’s Lynn, Massachusetts engine plant want to make ventilators to help with the fight against the coronavirus. Could this be a catalyst?
An admirable desire. Yet management doesn’t seem to want to go along with the plan.
“GE workers currently face a double threat, with a pandemic sweeping through American industry and a corporate structure designed to prioritize profits over their jobs,” wrote Rolling Stone contributor Jack Crosbie.
“Workers think there is an innovative solution to both problems: repurposing decommissioned facilities and saving jobs to build ventilators while providing the workforce with the resources it ne to stay healthy and productive.”
Although GE’s health care business already makes medical equipment, the people at the Lynn plant believe that their facility, along with six other locations in the aviation business, have the capacity and know-how to manufacture additional ventilators.
It’s a great idea, but there are just two problems.
First, people are already getting sick at the facility. There is no way that GE is going to add more flames to the coronavirus fire by increasing the headcount at that plant. That’s especially so given employees have been protesting unsafe work conditions there.
Second is the fact that GE is desperately trying to turn itself around. It doesn’t need to be messing with the headcount just to make a few more ventilators. Besides, GE has no desire to make ventilators at that plant or any other not explicitly designed for this purpose
As I said in the introduction, GE stock has only traded below $7 on three occasions over the past 26 years. In the most recent case, GE stock fell to a 52-week low of $5.90 on March 18, before recovering. As I write this, it’s up more than 5% on the day, and 12 cents over $7.
However, even at $5.90, I would have a tough time recommending its stock.
In my last article about GE on Feb. 28, I said that CEO Larry Culp’s turnaround plan had some serious warts. The stock also had some serious skepticism from long-time GE bear, JPMorgan analyst Stephen Tusa.
“Reports suggest that Tusa believes the headcount is essentially unchanged from 2018. He gets to that conclusion by excluding the 74,000 employees employed by its oil gas and transportation businesses, which were sold in 2019,” I wrote.
Furthermore, Tusa pointed out that GE’s aviation business didn’t just have a 737 MAX problem; it had other issues holding it back. Perhaps an angry and pissed off workforce is at the top of that list.
I went on to suggest that Tusa would have to seriously change his tune for GE stock to have any chance to get back to $20. At the time of my article, GE was trading just below $11.
On March 2, Tusa did just that, raising his rating from “sell” to “neutral” while also upping his target price by 60% from $5 to $8, and admitting that he was wrong about the company’s progress in 2019.
“We are upgrading GE as the spread between our FCF estimate and consensus is narrower after a better than expected 2019, helped by less de-risking at GECS than we had thought around which it would take a recession to influence, not our base case,” Tusa wrote in a note to clients.
The Bottom Line
Tusa’s change of tune came before the coronavirus took hold of the economy. It’s hard to know what his thoughts will be in 3-6 months once the ravages of this virus play themselves out.
For now, however, if he’s on board, I think it makes sense to buy GE stock at current prices, but only if you’re prepared to hold for 2-3 years. If you can get some under $7, even better.
GE stock is a buy.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.