GE Aerospace (GE)

They took a huge risk buying the French engineering company a few years ago. So far, so good. What they are doing now with Baker Hughes is a huge risk. This is part of their transition away financial services. There is a lot of uncertainty around these big moves that they are making. He is bearish on energy and commodities.

This has been disappointing and hasn’t really tracked as well as some of the other names he owns, such as United Technologies in the industrial space, or even some of the defence contractors. At this stage, he probably would not want to sell as a lot of the business is related to the oil market. Feels the oil markets are starting to bottom a little. Wait for oil prices to move a little and for the stock to move up a few dollars and then consider what you want to do. Dividend yield of 3.55%.

Often what happens when a new regime comes in, they tend to throw the kitchen sink in with the next earnings report, and get rid of anything that is bad. He suspects that will happen. Their estimates of cash flow and earnings were high, and were not going to be able to achieve them. Longer-term, this is constructive.

This has a very significant pension deficit and a significant amount of debt. They’ve been converting less and less of their earnings over into free cash flow. There is a very open debate as to whether or not they can fund the dividend.

He likes what they have done in their portfolio. They used to be “all things” global including healthcare, energy, etc. Feels that at this time a lot of that benefit has already been derived. Not sure you should step into this at this time.

CEO is a little out of favour. It is one of the worst performers in the Dow to date. Still has a very generous dividend yield and they have a number of various levers for growth, from healthcare to energy. Thinks investors are ultimately going to come back to this company. If all else fails, they can do more restructuring to unlock value.

He shies away from it. They spun off parts over the years. But it is such a big conglomerate. He only likes some parts. It will not be an outperformer.

Has been disappointed with the sideways movement. However, it gives a pretty nice dividend of about 3.5%. It is under-tracking some of the other industrial names he owns. He is keeping a very close eye on this to see if it gets close to his exit point of a stop loss.

He likes industrial companies, especially advanced manufacturing and robotics. The problem is, this company is one of the worst performing industrial companies in the sector. It has significantly underperformed the group. This is one for a bottom fisher, not for him.

If you don’t have much exposure to industrials, this is a good name to own. It reminds him a lot of Microsoft (MSFT-Q), which was stuck in the mud back around 2013. When Ballmer was replaced, the stock hasn’t looked back since. If the CEO was replaced, he could see the stock significantly higher. Good dividend yield.

If you are going to go into industrials, he would go more towards a Honeywell (HON-N). Over the last number of years, they have been rationalizing their portfolio’s businesses, so the chart is not really reflecting organic growth. They now have a much leaner, better portfolio of businesses.

This is a company that has missed the boat. The street is questioning the capabilities of the management. Sell and look elsewhere. This company moves so slowly that they buy companies at the wrong time. There are better plays.

An industrial company that had a massive financial services business attached to it. That financial services had a very high return on equity, that kind of masked the cyclicality of the industrial businesses. Trading at 18X earnings with a 3.3% dividend yield, but it is a 90% industrial company, and is more cyclical than it ever was before. He would say this is fairly valued at these prices.

He likes this, but it has been disappointing in terms of its relative performance to the rest of the group. The industrial space is a prime sector that should do well in an environment where cyclicals are doing well, a pro growth environment, where there is reflation and economic growth. He continues to hold this because the dividend is quite nice at 3.2%. The dividend growth rate should be pretty decent going out a few years. Feels they are being caught in the transition back to an industrial company and is being overlooked by investors. However, valuations are not extremely cheap for a company like this, 18X earnings and growing at about 10% or so.

(Top Pick Mar 22/16, Down 2%) It has been a disappointment. He liked it because it was being transformed. They got out of financial services just as financial services were taking off. What hurt them in the last year was their commitment to energy services. He is still there though. He owns it as a cyclical industrial company.