There was a time when IBM (IBM:NYSE) and General Electric ( GE: NYSE) were the class of the stock market. Well, IBM just delivered its twenty second consecutive quarter of declining revenue. General Electric, not to be outdone, hoisted up a Shaq-worthy brick with their Earnings miss as well.
Considering GE, they were the model of business strategy classes when I was in college. It was their strategy that they would be in business segments that they could be #1 or #2 in. Considering the recent divestitures and departures, it would seem that they aren’t winning or placing as much as they used to. The stock sold off early today by ten percent and then regained all of that by the end of the day. Is that computerized price action or opportunity? Probably both.
The new CEO of GE seems to be implementing the big bath strategy but does that mean that the dividend will be next? With $1 billion in free cash flow, how do they meet an $8 billion annual dividend payment? Optimism is actually fairly high for GE because management in the last decade had clearly not met their objectives. They may have sold a lot of books about business, but it didn’t help the stockholders.
GE has had a prominent CEO for as long as I’ve been alive but I don’t know that they ever had a visionary. Business fundamentals are one thing, but if the first goal of management is to maximize shareholder value, do fundamentals really carry the weight they once did?
GE and IBM suffer from the same problem that many corporations do. They are simply too big to be agile enough to react to structural changes in industry. I remember in the mid 1990’s, IBM was off thirty percent or so in a year and it was like the world was coming to an end. It was like IBM and GE doing well was a part of the American fabric. I guess times have changed.
DISCLOSURE: this article is written for informational purposes only and should not be relied upon an investment advice. The information here is based on my own observations and from sources believed to be reliable. This is not meant to be a buy or sell recommendation on any stock mentioned. Perform your own due diligence and consult a qualified advisor before making any investment decision. I do not personally own any of the stocks mentioned here.