The Incredibly Shrinking General Electric
I advise those who fear today’s giant tech companies to examine the current sorry state of 20th Century tech giant General Electric (NYSE: GE).
GE was one of the most feared companies of the 20th Century. In fact, science fiction great Kurt Vonnegut was so scared of General Electric he wrote at least two novels about the company. To clarify, Vonnegut’s experiences as a PR man for GE in the 1940s and 1950s helped inspire Player Piano and Cat’s Cradle, Wired observes.
Today, however, nobody is afraid of GE. General Electric (NYSE: GE) stock; for example, was trading at $11.29 on 27 November 2019. Meanwhile, Mr. Market gave GE a $98.602 billion market capitalization on the same day.
Does Fear and Loathing Drive Stock Value?
In contrast, Mr. Market gave Alphabet (NASDAQ: GOOG), or Google, General Electric’s successor as the popular imagination’s corporate bogeyman, a market cap of $897.458 billion on the same day.
Moreover, shares of Alphabet (NASDAQ: GOOGL) traded at $1,312.99. Thus it could pay for a company to be feared and hated.
For instance, another hated company Amazon (NASDAQ: AMZN) had a market capitalization of $901.612 billion on 27 November 2019. Additionally, Amazon shares were trading at $1,796.94 on the same day.
One reason people buy Amazon and Alphabet stock is that they fear those companies. To explain, people who believe that a company is all powerful could think such a corporation can make unlimited amounts of money. Hence, those people have a strong incentive to buy that company’s stock.
Conversely, investors ignore General Electric (NYSE: GE) because they view that company as harmless. Therefore, it is good to be feared or hated by the public.
General Electric is Shrinking
General Electric’s financial numbers show the fear and loathing index could be an accurate gauge of a company’s profitability.
GE’s quarterly revenues; for instance, fell from $28.831 billion on 30 June 2019 to $23.60 billion on 30 September 2019. In contrast, General Electric’s quarterly profit margin rose from $5.765 billion on 30 June 2019 to $6.032 billion three months later.
Dramatically, General Electric reported a quarterly net loss of -$9.423 billion on 30 September 2019. That number was down from $128 million on 30 June 2019 and $3.588 billion on 31 March 2019. However, General Electric reported a quarterly operating income of $437 million on 30 September 2019 down from $1.281 billion on 30 June 2019.
How Much Cash does General Electric Generate?
Notably, General Electric still generates a lot of cash from its business. For instance, GE reported an operating cash flow of $2.013 billion, an investing cash flow of $1.721 billion, and a free cash flow of $2.074 billion on 30 September 2019.
Those numbers are up from -$22 million, -$113 million, and -$1.039 billion on 30 June 2019. Thus, GE runs a lot of cash through its till.
Importantly, General Electric keeps a lot of that cash around. For instance, General Electric reported having $27.810 billion in cash and equivalents on 30 September 2019. That number was down from $31.968 billion on 30 June 2019.
General Electric generates a lot of cash because it manufactures big-ticket items such as power plants and jet engines. Those machines are not sexy but they are profitable.
General Electric’s Huge Jet Engine Business
In particular, GE builds the world’s best-selling jet engine the CFM56 in partnership with Safran Aircraft. General Electric claims, it has sold over 30,000 CFM56 engines to over 550 airlines. In particular, the CFM56 powers the Airbus A320 airliners.
In addition, GE and Safran are selling the LEAP as a replacement for the CFM56. Safran and GE each own 50% of CFM International. CFM manufactures engines for many aircraft including the controversial Boeing 737 Max.
Oddly, Boeing (NYSE: BAE) claims to have received orders for 50 new 737 Max jetliners in November 2019, Barron’s reports. Overall, Boeing has received orders for 200 Max jets over the past year.
There could be a backlog of orders for up to 5,400 jets at Boeing, Barron’s claims. That includes 4,400 of the two 737 jets. To explain Boeing builds both the 737 Max and its predecessor the 737 NG.
Therefore, General Electric has a huge jet engine business that is growing. The manufacturer is no longer feared but there is still a tremendous demand for some of GE’s products.
Is General Electric a Good Dividend Stock?
In the final analysis, General Electric (NYESE: GE) is a cheap and cash rich company with a growing business. Under those circumstances I consider GE a value investment despite its losses.
General Electric; however, is a terrible dividend stock. For example, GE stockholders received a 1₵ on 13 September 2019. Moreover, General Electric offered a dividend yield of 0.35%, an annualized payout of 4₵, and a payout ratio of 6.57% on 27 November 2019.
If you don’t need immediate income General Electric could be a good growth stock. Yet, GE shows that not being fear can hurt your company’s stock value and market capitalization. Fear it seems is good on Wall Street.