Hmmm.. GE a good buy @ $32.50???

Started by Woolly Bugger, April 11, 2008, 10:33:31 AM

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Silver Creek

Quote from: Silver Creek on June 09, 2008, 09:45:40 AM
I posted a long reply about GE about a week ago but removed it because I recommended another stock instead of GE. Those of you that did get a chance to read it know that my recommendation went up since then.

In hard economic times you need defensive rather than offensive stocks. WMT is the stock I recommended but then erased back in early June. I bought even earlier and I'm up almost a third in WMT.

GE vs WMT performance charts for the last 6 months.

I resurrected this thread because GE is now at the point where it is close to a buy IMHO. I wouldn't have bought at $32.50 but 3 months later at $28.16, it is a good value play if you have patience for it to recover. GE still faces the problem of an increasing value of the dollar I predicted would happen back on Jun 12th. The dollar began its rise just about a month later.

Quote from: Silver Creek on June 12, 2008, 15:15:27 PM
GE now at $28.90, a new 52 wk low. Bernanke's comments about the threat of inflation is taking hold as are the comments of the European Central Bank's Jean-Claude Tricet. Both are talking tough on inflation raising the prospects of interest rate increases which would kill any prospects of a housing market recovery in the near future and making a true recession more probable. At this point, there almost certainly would be no interest rate drop given what Bernanke has said.

An interest rate increase by the Federal Reserve without an European Central Bank increase would serve to strengthen the dollar versus the Euro. This would deal a double blow to GE. It would increase the cost of financing which would hurt the financial unit of GE and simultaneously deflate the value of foreign earnings. So less money coming in and the earnings from Euros is devalued vs the dollar = a double hit to earnings.

If the European Central bank responds with an interest rate increase of its own, this would keep the dollar relatively weak to the Euro BUT the increase in borrowing costs to foreign corporations would decrease the amount of products that they buy from GE. Simultaneously currencies pegged to the dollar would also see borrowing costs increase and they will buy less from GE. Again a double whammy to GE earnings.

GE would be between a rock and a hard place and earnings will surely fall in either scenario unless there is an unforeseen fall in oil prices which would stimulate the economy and remove the need for an interest hike.

Although the price of GE seems very attractive, if you do buy at current prices, you should protect yourself with a stop loss sell order at 15% below your buy price.

See the value of the dollar vs the pound and the dollar vs the euro.

Both England and Europe are entering a recession. We are further along in our economic cycle and will recover first. They will have to cut interest rates which will strengthen the dollar further. The rise in the value of the dollar vs the pound and the euro is in anticipation of these rate cuts.

GE will have difficulty meeting its next earnings target because of the reversal in currency valuations as overseas earnings of pounds and euros are repatriated into dollars.

That is why you will need to be patient if you buy GE now.
Regards,

Silver

http://tinyurl.com/kkctayx


"Discovery consists of seeing what everybody has seen and thinking what nobody has thought"..........Szent-Gyorgy

Silver Creek

#46
GE is cratering today. I suspect someone leaked that GE will miss earnings badly for this quarter.

Even I'm surprised. I would have thought that GE would have issued a warning before bad news leaked out. Regular investors do not like to be surprised when the big boys get the news first, allowing then to dump shares.
Regards,

Silver

http://tinyurl.com/kkctayx


"Discovery consists of seeing what everybody has seen and thinking what nobody has thought"..........Szent-Gyorgy

phg

I was thinking about this thread the other day, but didn't think it was worth reviving for the smartaleck remark I was going to make.  GE is still wallowing, as is most of the rest of the market.  It just can't seem to find any direction. :-\

Woolly Bugger

#48
 ::)


ugh... wait a sec...

AAPL -6.93
GE -2.14
XOM -1.35
ex - I'm not going to live with you through one more fishing season!
me -There's a season?

Pastor explains icons to my son: you know like the fish symbol on the back of cars.
My son: My dad has two fish on his car and they're both trout!

flatlander

Quote from: phg on September 12, 2008, 18:36:17 PM
It just can't seem to find any direction. :-\

LOL...what screen are you watching PHG!  Looks like we're heading in the direction of capitulation.

Silver Creek

Only one thing is certain, GE is a better buy today than it was at $32.50. What is unknown is whether it will been seen as a good buy.

I still think Walmart is a still better buy. The odds of a recession have increased and in recessions, consumers pinch pennies. Walmart also wants to get into banking and no time is better than this to pick up a bank cheaply.

GE has gotten a better bounce off of the bottom because it fell harder. Smart investing is assessing risk vs reward. You may make more in GE if you buy now, but there is a greater risk because we don't know what exposure GE  Finance (GE Commercial Finance and GE Money) has to the morgage crisis. GE Finance provides 50% of GE's profit.

You can look at GE as a manufacturing conglomerate that owns a bank or a bank that owns manufacturing.

http://www.schaeffersresearch.com/commentary/content/options+update+general+electric+bears+prompt+surge+in+put+volume+/observations.aspx?ID=87836

http://www.businessweek.com/ap/financialnews/D938OTOG1.htm

http://money.cnn.com/news/newsfeeds/articles/djf500/200809151656DOWJONESDJONLINE000728_FORTUNE5.htm



Regards,

Silver

http://tinyurl.com/kkctayx


"Discovery consists of seeing what everybody has seen and thinking what nobody has thought"..........Szent-Gyorgy

Silver Creek

Quote from: Silver Creek on September 12, 2008, 11:32:21 AM
GE is cratering today. I suspect someone leaked that GE will miss earnings badly for this quarter.

Even I'm surprised. I would have thought that GE would have issued a warning before bad news leaked out. Regular investors do not like to be surprised when the big boys get the news first, allowing then to dump shares.

http://www.nytimes.com/2008/09/26/business/26electric.htm
Regards,

Silver

http://tinyurl.com/kkctayx


"Discovery consists of seeing what everybody has seen and thinking what nobody has thought"..........Szent-Gyorgy

Trout Maharishi

Yea, no leaks mean the MF's can short sell or naked sell it and make a couple more million >:D
"We're all going to die, all of us, what a circus! That alone should make us love each other but it doesn't. We are terrorized and flattened by trivialities, we are eaten up by nothing."
― Charles Bukowski

troutrus


Silver Creek

If you have 3 billion to invest you too can get preferred stock paying 10% plus warrants to buy stock at below the current price.

Anybody noticed that GE not only suspended it's stock buyback, but now has sold stock to raise money. It's pretty obvious that GE doesn't have the money to even buy its stock back at a depressed price.

Here's what I wrote about GE on another BB on why they need money.

"......To show how this crisis is affecting even the best companies in the US, consider what is happening to GE. GE has a triple AAA financial rating. They borrow money on the short term markets. These notes or "commercial paper" are short term loans designed for temporary borrowing for periods as short as a month. Because of the short term of the loans there is very little risk for the lender and the rates for a company like GE are normally very low. These short term notes are what makes the economy move, and without them, money cannot flow to where it is needed. It is the blood of our economy.

For GE 18% of their borrowing is on commercial paper. The cost of borrowing has increases so much that at current rates, it will cost GE an extra 360 million dollars a year in interest costs to finance just 18% of their lowest cost borrowing. This is 360 million dollars that cannot be paid out to their workers, to expand thier business, or pay out as dividends.

What is happening to their long term cost? Well that is even worse. Those bonds are going for a 10% yield on the market and bond traders are holding out for a 15% yield. For GE to borrow on new bonds to replace the ones that are maturing, they will have to pay the going rate which is above 10% and rising to 15%. That means that even GE, with the highest and safest rating, is being closed out from borrowing. Their costs increase even without new borrowing because they have to refinance old bonds with new."

So why did GE give prefered stock at a 10% yield? Because it is cheaper than the commercial market.

Buffet thought GE was not a good buy at $32.50 but he took warrants at a strike price of $22.25. Lets hope those warrants land up in the money, otherwise we are all screwed.






Regards,

Silver

http://tinyurl.com/kkctayx


"Discovery consists of seeing what everybody has seen and thinking what nobody has thought"..........Szent-Gyorgy

phg

...so is it a buy yet at $21.50?   >:D

Only time will tell, of course, but this market sure is baffling. 

Woolly Bugger

Quote from: phg on October 03, 2008, 07:31:28 AM
...so is it a buy yet at $21.50?   >:D

Only time will tell, of course, but this market sure is baffling. 

Buffet bet $3 Billion that it is...

http://www.nytimes.com/2008/10/02/business/02electric.html


Just be thankful you didn't invest in Wachovia or Leeman or AIG
ex - I'm not going to live with you through one more fishing season!
me -There's a season?

Pastor explains icons to my son: you know like the fish symbol on the back of cars.
My son: My dad has two fish on his car and they're both trout!

Silver Creek

Quote from: Woolly Bugger on October 03, 2008, 07:58:10 AM
Quote from: phg on October 03, 2008, 07:31:28 AM
...so is it a buy yet at $21.50?   >:D

Only time will tell, of course, but this market sure is baffling. 

Buffet bet $3 Billion that it is...

http://www.nytimes.com/2008/10/02/business/02electric.html



Buffet got preferred stock paying 10% plus warrants. Big difference from regular stock. That 10% he gets comes off of your dividend. The warrants are the icing. IF they end up inthe money, your stock gets diluted by Buffet acting on the warrants.

Basically, Buffet loaned GE 3 billion backed up by preferred stock, with a 10% loan redemption fee (the 10% premium to buy back the preferred shares) and warrants to boot.

That's one of the reasons I bought BRKB.

The fact that GE suspended its stock buy back program, when its stock is soooo cheap is very bearish for GE investors in the short term. They are not only not buying back stock, they are going in reverse by issuing stock ----> dilution of stock value.

"G.E. is selling $3 billion of preferred stock in a private offering to Mr. Buffett's company, Berkshire Hathaway. The preferred stock pays dividend of 10 percent, and G.E. can purchase the shares back from Mr. Buffett after three years by paying a 10 percent premium, or $3.3 billion.

But the real payoff for Mr. Buffett will come if G.E.'s battered stock rebounds. As part of the financing, Berkshire Hathaway is receiving warrants to purchase $3 billion of G.E. common stock for $22.25 a share, at any time over the next five years."
Regards,

Silver

http://tinyurl.com/kkctayx


"Discovery consists of seeing what everybody has seen and thinking what nobody has thought"..........Szent-Gyorgy

phg

With it's stock price approaching $18?  Yeah, things seem to be looking up for GE.  Makes you wish you'd had enough confidence to buy it when it was running $11-$12, though, doesn't it?   ;D


flatlander

Quote from: phg on December 14, 2010, 18:56:49 PM
With it's stock price approaching $18?  Yeah, things seem to be looking up for GE.  Makes you wish you'd had enough confidence to buy it when it was running $11-$12, though, doesn't it?   ;D

I added more when it was at $6-$7...sold it when it doubled though.  Still have a core long position in it.  Wish I'd sold it when it was in the $60's though b'; b'; b';