A Day Late and a Whole lot of Dollars Short

We have documented in the past that I have a tremendous respect for many of the analysts on Wall Street. They have insights that many of us are not privy to and, for the most part do a pretty thorough job of analyzing a company’s prospects for the short, intermediate and long term. What I find perplexing though is despite the great analytics, buy, sell and hold recommendations seem to miss by a wide mark on firms they cover. Indeed some analysts have very close ties to the companies they cover. In addition to being on every earnings call, attending every analyst day event, and even having access to senior management at firms they review, they have difficulties in timing the market. For example, General Electric (GE) is having a very challenging time. The house that Jack Welch built seems to not have a firm foundation, and one of the oldest and most revered companies is taking a swan dive into the abyss. GE has fallen on very hard times. It traded as high as $32.88 back in 2016 and was a $60 stock back before the tech bubble burst. It now trades at $21.50 as of this writing. GE is one of the oldest members of the Dow Jones Industrial average and used to sport a AAA credit rating. Now people fear the unkindest of cuts: a dividend cut coupled with getting cut from the Dow Jones Industrial Average!!! GE currently yields 4.3 percent. Many are starting to call for the company to break itself up or divest entire businesses in an attempt to get back on track.

Moreover, in the last few days the following analysts have downgrading GE stock:

  • Christopher Glynn, an Oppenheimer analyst, downgraded GE to underperform from perform (for those not conversant with “analyst-speak” that means Glynn no longer feels that GE will perform in line with the SP 500 and will, in fact, underperform).
  • Morgan Stanley cut their rating on GE to underweight (translation: sell the darn thing already).
  • UBS analyst Christopher Belfiore downgraded GE to neutral citing disappointing quarterly results.

SERIOUSLY? Are you kidding me? The stock has disintegrated into powder, while the market races to new records, and they are just now sounding the alarm? Where were these guys when GE was trading at $60 or $40, or heck even $30 a share? I don’t see the logic in downgrading after the stock takes a 50 percent haircut over the last several years. Only one analyst, from Bank of America/Merrill Lynch had the guts to go out on a limb and issue a buy recommendation. What does Bank of America know? It will be interesting to see who is right on GE going forward.

In terms of relevance to In Sickness and Wealth readers, GE has a terrific Healthcare division that provides about one sixth of GE’s revenues. Should the company spin off or split up in anyway, a stand-alone GE Healthcare is something we’d be interested in, as GE is one of the three companies that “own” the medical imaging space (something we will cover in an upcoming issue).

Stay tuned…

David Lerman / Jodie Warner

This article has 1 comment

  1. lucindazhang

    Research Analysts never have real insights into the companies they cover because they themselves do not put money in the stocks they cover and therefore they don’t really care about whether their recommendations can make money. They always lag the market. Trading on their recommendations could only generate average return at best and incur significant losses at worst. That’s why every buyside firm still need to hire people to conduct their own research.

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