Recent Sell – GE

I decided to publish this as my weekly post as time is of the essence for any of my readers contemplating a similar decision.

Since the most recent dividend cut, I’ve been holding my GE stock – and almost pulled the trigger to buy more – for one reason: the potential value of the proposed spinoffs. The healthcare unit being a crown jewel and the rail unit being an interesting one.

Word on the street is that the healthcare IPO may not be as lucrative to GE investors as previously thought as GE may monetize a greater share (probably good for the company, though). This I was willing to overlook until the terms were actually released.

My decision to sell was reached when the revised terms of the rail unit were released. Last week it was announced that GE would monetize more of the deal – basically to shore up the balance sheet a little with cash and by shifting the tax liability to shareholders. End result is each share of GE will receive approximately .005403 shares of WAB. You read that right – owners of 100 shares will receive about a half of a share of WAB. As no fractional shares are to be issued, cash in lieu of shares is to be expected.

I’m willing to take a slight loss (as I previously averaged down). What I am unwilling to take is a possible tax liability as well. Frankly, my faith in this company no longer extends that far.

The record date has been set for February 14th with the spin and merger occurring February 25th. If so inclined, I’ll buy WAB at a later date. I am willing to buy into the healthcare unit at (or post) IPO depending on the structure.

I have to acknowledge that the days of playing the contrarian are probably over for this stock. My prior strategy – which was profitable – had been to buy companies which had purchased units that GE was offloading. Under this CEO – and for the first time in many years – this plan is no longer viable.

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8 thoughts on “Recent Sell – GE

  1. Hmmm interesting commentary. I sold out GE in summer of 2016, which luckily turned out to be close to the top for the stock. Dividend cuts are painful and as expected, most in the DGI community tend to sell into the news.

    But interestingly, there are some offshoots that are starting to look a bit interesting in GE. The debt and possibility of credit rating downgrade is a definite possibility, which could potentially send GE into a tailspin, but there are some potential lucrative returns in place too. I am keeping an eye on this story and tempted to buy a bit if it falls back down in the 6-7$ range.

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    • I agree there are some possibilities with this company but they have to negotiate a minefield to accomplish it. This CEO’s moves – while company friendly – are not shareholder friendly in the near term, especially in taxable accounts. I suspect Healthcare and Baker Hughes will follow the same template of offloading some tax liability to shareholders. My main concern going forward is the unfunded pension liabilities and if Aviation can carry Power until that industry recovers. At least by selling at $10.24 it’s 34% off its recent low!

      Appreciate the comment!

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  2. I remember when GE was the darling of the 90s but then come to find out they weee not beating earnings by a penny and beating on revenue they were close sometimes. It’s a shell of what it used to be. It’s always hard to sell but sometimes you have to so you don’t lose all your money.

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  3. A few years ago I came to that same conclusion as it seemed that their style had become buy high and sell low while managing the earnings line. Every time they sold a business line I bought the stock of the buyer – some of these being BMO, FHN, and ABB. That strategy has more than offset my loss on GE (which I’ll claim in the next tax year).

    While I concur with R2R’s assessment, I want clarity on the tax implications of their spins and IPOs. If liability resides with the shareholder (and unable to be deferred), this will mitigate some of the potential reward. Sort of like last year’s tax cuts which (while currently counting) looks more like a 20% increase.

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    • I think current management is pulling out all the stops to right the ship, so there is certainly hope. DGI purists bailed early on – some with cut #1. Me, being more of a DGI special situations type of guy, waited until it was fairly certain there was minimal money to be had in the spinoffs before taking my chips off the table. With their first cut they ceased to be a DGI stock and became a speculative endeavor. Now to figure out the fate of my other dividend cutter!

      Appreciate the visit!

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  4. I’m often surprised at how ruthless the DGI community can be when a company cuts its dividend, but most of the time the decision isn’t a bad one. I’m probably more like you in taking a more contrarian approach, and being happy to buy when times are tough and the market punishes the company, but it’s a tricky game to know when to bail. Sounds like you’ve made a decent decision to me.

    Cheers, Frankie

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    • I tend to think it’s more of the investing stage one is in. The ability to quickly react and move improving your forward dividends is advantageous in the accumulation phase, although the downside is your capital loss is baked in.

      When in the distribution phase, capital preservation plays a greater role which leads to a more strategic view, i.e., the value of the spins. The benefit with the delay for the assessment was a recovery in the price from $6.66 to my sale price of $10.24 (reduced by the opportunity cost of foregone dividends).

      But the basis for every cut is different and each investor’s situation is unique which is the ‘tricky situation’ you reference. Appreciate your insight!

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