“I would be very wary. GE has gotten the majority of its profits from its financing arm, which has generated a lot of suspiciously smooth earnings. My guess is that they are heavily into derivatives. The downside of derivatives in the past three or fours years is that it took a lot of risk taking to generate any returns. GE stock could go the way of the Detroit 3, and end up in the low single digits.”
You are just speculating. The difference between GE and banks is that unlike banks, GE actually makes and sells things. They have multiple income streams from a variety of market leading businesses. Its probably the best type of company to survive in the current environment.
GE is a manufacturer with the balance sheet of an investment bank. Look at its ratio of debt to tangible assets. Then compare it to Caterpillar's. This is why GE requested Federal aid, whereas Caterpillar did not, despite the fact that Caterpillar is intimately tied to the construction business, which is imploding. Caterpillar finances the sales of its equipment, which is risky enough, but GE finances the sales of everything under the sun, which means they take on the problems of other industries*. On top of that they are a big time player in the credit derivative market. When the economy is going on all cylinders, this really isn't a problem. But in a severe economic dislocation like this one, where the high single digit trillions will be lost just on bad debt related to housing, GE's in real trouble. Or at least the stockholders are.
* IBM is a huge financier in the computer business, but at least it sticks to computer-related fields. GE does *everything*.
It's not speculation to say much of the vast profits came from the financing arm, and nobody really knows what the quality of the assets in that "bank" are. Yes, GE also makes stuff, and absent it's basically having its own massive non-transparent bank, it would be a good buy imho.