Is now the time to buy General Electric (NYSE:GE) stock as shares tread water? Not so fast! Shares are down big due to its novel coronavirus headwinds. But, as the pandemic affects its turnaround plan, it’s hard to see a rebound in the cards anytime soon.
How so? Even before the outbreak, the company faced a laundry-list of problems. Issues from years past snowballed into major hurdles. Granted, it wasn’t like the company was twiddling its thumbs. By bringing on Larry Culp as CEO, the company made a smart and proactive decision.
But, while Culp is a talented CEO, GE has a lot of moving parts. And, said parts need a lot of maintenance. In short, fixing this company, and its disparate operating units, is easier said than done.
That’s not to say Culp hasn’t made the right moves. His aggressive actions could help make General Electric “lean and mean” down the road. But, for now, everything hinges on the outbreak fading, and things “returning to normal.”
So, what’s the call here? Until the situation changes, there’s not much reason to buy this hard-hit stock.
GE Stock, Pandemic Headwinds and the Turnaround
General Electric was already a basket case before the outbreak. Except for its Healthcare unit, the company’s various units were facing big challenges.
I give GE credit for putting Culp (an outsider) at the helm, rather than a company “lifer.” A change of the guard was more than overdue. Prior management made poor decisions, as seen from the stock’s long-term decline.
But, as I wrote last month, Culp’s management prowess wasn’t enough to counter pandemic headwinds. Not only did Covid-19 hurt the flagship Aviation business, even the Healthcare unit took a hit. We saw this pain in the steep revenue decline in the most recent quarter.
Granted, while Culp’s work is cut out for him, he’s not giving up. Looking to “lean management” techniques, he is pulling all the stops to bring GE stock back to life. Yet, given Covid-19’s affect on the turnaround, it’s hard to be confident lean management will save the day.
Yes, longer term it could help move the needle. But, this alone won’t help General Electric overcome this challenging environment. And, until we “return to normal,” don’t expect shares to mount any sort of recovery.
Insurance Liability Issues Continue to Linger
It doesn’t matter how well Larry Culp turns this bloated company into a “lean and mean” operation. Until its hard-hit units recover, don’t expect GE stock to start heading higher. The largest part of General Electric is its aviation business. But, this business is stuck in the doghouse until commercial aviation gets back to normal. And it may be years before that happens.
The other operating units? It could take some time for them to recover as well. Especially the GE Capital unit. But not only due to Covid-19 headwinds. Remember the company’s insurance liability issues? You may of thought this was in the rearview mirror. But, a recent development may mean the issue remains a big concern.
On Oct. 6, the Securities and Exchange Commission (SEC) said it was considering civil action against the company for the way the company initially accounted for its insurance liability.
Granted, investors are now well aware of the legacy insurance problem. But, is the company out of the woods? It’s debatable whether the pandemic has a positive or negative impact. Yet, as this issue remains a red flag, I have more reason to steer clear of GE stock.
With No Reason to Buy, Avoid General Electric
It’s going to take a lot for GE to bounce back. But, given the pandemic, and a turnaround still in progress, I’m not confident there’s one on the horizon. Until commercial aviation makes a comeback, the company’s flagship units will remain grounded.
The other units (even the more stable Healthcare unit) continue to face challenges. Especially GE Capital, with its lingering long-term care insurance liabilities. The result? In the meantime, expect this once-venerable stock to continue treading water. Or even head lower, as its continuing issues get worse before they get better.
In short, with little reason to buy GE stock, it’s best to avoid for now.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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