General Electric Co shares stabilized after a brutal slide last week sent the stock near six-year lows, but the worst may not be over.
Some investors still do not see enough value to warrant buying the shares, which have lost some of their luster as a blue-chip investment.
They are sorting through massive changes announced by GE’s new Chief Executive John Flannery last Monday: hugely reduced near-term profit-growth prospects, a halved dividend, and a wave of promised divestitures.
“In a sense, the stock is trying to find an investor,” said Scott Lawson, vice president of Westwood Holdings Group in Dallas, who follows industrial stocks, as the stock was sliding last week. “That investor is not a growth guy, because they are not growing. It’s not a value guy, because they’re not cheap on the value metrics.”
Massive stock decline
The massive decline for the stock - more than 40 percent this year - suggests that it would pique the interest of value players.
GE shares fell to $17.90, their lowest closing price since December 2011, after dropping 12.6 percent over Monday and Tuesday, their biggest two-day decline since the financial crisis. The stock edged back up over the rest of the week and closed Friday at $18.21 amid news that Flannery had bought about $1.1 million worth of the stock.
But GE shares have not fallen enough for some investors.
“What we are looking for is a sufficient margin of safety to reasonable intrinsic value, and at the current stock price, we just don’t think the margin of safety is there,” Michael Kon, portfolio manager with Golub Group in San Mateo, California, said as the stock hovered around $18.
Kon said he was looking either for the stock to fall further or for better-than-expected improvement in GE’s power-turbine division before any investment.
Investment advisory firm Alan B. Lancz & Associates bought some GE shares last week as the stock dipped into the $17 range, seeing value in the company’s assets, which also include remaining major businesses in jet engines and healthcare, said Alan Lancz, president of the Toledo, Ohio-based firm.
But Lancz said he sees GE as an investment with a three- to five-year payoff and acknowledged the stock may fall further before that.