Time to Call ‘Lights Out’ on General Electric

Stocks To Sell

If Thomas Edison were still alive and still inventing breakthroughs like the phonograph, electric light, and an app-activated mouth plug to shut up airplane talkers, then it’s likely — more than likely — that he would hang his head in sorrow to see what’s become of his beloved company that he co-founded in 1892, General Electric (NYSE:GE). Never mind that imaginary scenario, though, as for investors holding GE stock, the pain has been very real these past few years.

General Electric (GE) sign on a GE factory in Fort Wayne, Indiana.

Source: Jonathan Weiss / Shutterstock.com

To wit: delisted from the Dow Jones Industrial Average, where it was a founding company, after 110 years (2016). Slashing its once rock-solid dividend to a penny (2018). Even its prestige went out the window when the mighty, history-making progenitor of the light bulb put its lighting business on the sales block (2018). Smart business move? Perhaps. A sign of trouble and terrible image management? Definitely. No wonder some shareholders asked, “Who turned out the lights?”

All this brings us to 2020, where the story has swirled — rather anxiously — around whether GE can make a comeback, now or ever. After all, it made a big bet in the energy sector at almost the exact time energy stocks began to fritz, flop and flatline. Oh no. Nor is 2020 exactly the year of big recoveries for stock stalwarts. That established, let’s make like the Wizard of Menlo Park and see if we can shine some light on the subject.

GE Stock and the Post-Welch Woes

Today, GE stock trades at $6.50 per share, a number you can put in perspective a number of ways. Once upon a time, GE was a buy-and-hold dream, the kind of company you had every reason to expect would head off course, if it ever did, at battleship-slow speed. And surely, many a smart investor would’ve been delighted in 2000, when the stock traded at $57 and had an absolutely uninterrupted climb of 20-plus years.

And then, it happened.

CEO hall of famer Jack Welch left GE in 2001 after 20 years at the helm. And almost immediately, the Dow Jones dominator that never knew a big loss in its history lost it in a big way. Forget U-shaped recoveries or K-shaped recoveries or whatever letter is in vogue these days: GE went on a 20-year plummet that undid every single thing Welch accomplished in his 20 years.

Signs of hope are scarce indeed for the legacy company. Using a finer lens, GE stock is weathering a swan dive of 45% this year. To be fair, investor nausea exacerbated in mid-February the same time the novel coronavirus walloped stocks in sectors from entertainment to dining to manufacturing.

Fraught with Fraud Allegations

Given GE’s long, long history and market capitalization of roughly $57 billion, a solid argument could be made that investors “buying the bottom” could end up on top post-Covid-19.

One: GE suffered its only pummeling this year over a month when Covid-19 first set in. Two: GE stock shot up 80% between December 2018 and February 2020. And three: that 2017 climb began when GE was priced at a similar $7 per share. For us puckish types, that’s just a buck more than one of those funky GE 25-watt bulbs with the stained-glass pattern. Groovy, babe.

And yet, you’d be a fool to make a long-term bet on GE. Its pension woes are well documented. So are its troubles with covering long-term care insurance policies out of its insurance business unit. And the worst thing a company on the ropes needs is a highly publicized fraud allegation, which came last year.

Harry Markopolos — the whistleblower who revealed Bernie Madoff’s Ponzi scheme — released a scathing 175-page report in August 2019 that alleged financial manipulations amounting to “a bigger fraud than Enron.”

For the record, GE chairman and CEO Larry Culp vigorously denied those allegations, characterizing them attempted market manipulation. Hey, but does anyone expect a CEO under such fire to say, “Yup, it’s all true.”? Or even half true? Or a teeny-weeny-weeny bit true? Come on. And if the guy who snagged Madoff is behind the whistle, and has 175 pages to back up his case, I would not bet against him.

Stay Far, Far Away from General Electric

Nor would I bet on GE stock. It’s one of those rare instances where I don’t give a hoot what Wall Street analysts say, or my InvestorPlace colleagues, if they’re arguing a case for this company. It’s one thing to walk into a lion’s den — but quite another where feds might be waiting with handcuffs.

My job here is not — absolutely not — to try GE on these pages. Rather, I need to point out wherever I see what looks like investor quicksand before you get that sinking feeling. GE today is not the GE of its remarkable history. And on three key touchstones — C-suite leadership, evidence of a financial turnaround and a clean bill of health from corporate watchdogs — it is failing miserably.

Do not compound that misery by putting your hard-earned money here. I can’t help but think that if Edison were around today, as much as it might pain him, he’d say the same thing.

On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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