GE Aerospace (GE)

He has hated this company for 10 years or more. It is one of the major transformations for one of the major companies in North America. It is a special situation. Upside is $31% lower than that of September 23’rd of this year. GE Capital`s balance sheet is so large it is weighing down the company. Put it away and in five years look at it again. When they take GE Capital off the balance sheet, his model price will skyrocket.

He is favourably disposed to it and almost made it a pick today. He likes the financial deconsolidation. You are going to get a re-rate in the industrial part of the company that will remain. They have been held back by some meaningful business in oil and gas. They have some weakness in their healthcare business. However, it can do well in this environment.

Buy a great company like GE-N when it has underperformed compared to the index. He would not chase it here.

It is going through a restructuring. They are selling off financial assets. You can buy it. They are getting good prices for their assets. It will be a tight walking rope. You could see GE-N start to spin off other businesses. It is out performing CMI-N and CAT-N.

They are finally transforming it back into an industrial company. They are undoing what was wrong when `08 hit. The market pays more for that type of earnings than financial services earnings. He thinks this is a great opportunity to buy this type of company. Great dividend that will go up.

They have been trying to restructure for the last half dozen years. They moved to oil and gas at the wrong time. They have been spinning their wheels. It just cannot get out of its own way. Prefers HON-N.

They are going back to their traditional industrial businesses. But it is harder to succeed at than financials. It would have to fall a lot further for him to consider. He would prefer Honeywell.

They are getting back to their core business. A big industrial leader. They make hydro turbines, jet engines, etc. Getting out of the money business, which is hugely competitive. Dividend yield of 3.71%.

Sold his holdings on the basis of the Alstom deal which he thought was diluted down. Governments were involved and forced the hand of GE. When a CEO is in a position for 15 years and makes a number of moves and they just don’t work out, he thinks it is time for a change.

One of the attractions is that management is trying to make it into what it once was. It had been made largely into a financial company instead of an industrial company. Have been getting out of financials and buying back into the industrial and health care type of area. The market is still waiting to see the results of unwinding the financial.

Their dividend finally went up after a very long time. He thinks it is a terrific company and a leader in many in many industries. The problem is that the American economy is growing very slowly. They are finding it hard to get traction and move ahead. If you have owned for a long time he might stick with it. He thinks they eventually might make money.

They want to divest assets and focus on the industrial energy side. Have done a great job of doing that in a pretty short period of time. The question is, how are they going to reinvest those dollars and how will that transition go. We are in the early stages of the transition and it is too early to say how well it is going. Also, they have made the largest acquisition that they have ever made in history. Spent $17 billion acquiring Alstom, the French engineering firm and there is some integration risks. He likes the name. It is high-quality, well-established and pays a great dividend, but at a time when they are going through such a profound transition, he would wait to get some evidence that progress is taking place. Trading at 18X earnings.

You need patience. It is a great company. It used to be a big global with a lot of different businesses. Today they are focusing on their core of industrial. They have 100 billion of assets up for sale. They are focusing on power, oil and gas, and aviation. Good dividend so you get paid to wait. There is some good upside. It takes time to refocus this huge company.

They are spinning out businesses. Made an announcement about 2 months ago about spinning out a big part of their business, and the stock jumped from $23-$28 in the course of a day. Very often when a chart does that, it leaves a gap in the chart. Over the next number of days, weeks and months, it will often come back and fill that gap, which it has just done in the last few days. Thinks the long-term picture is very positive. This is an industrial and industrials are going through some pressures, but technically it looks quite good. You are not going to get hurt. Pays just under 4%.

Have started shedding assets and are getting down to more of a core operation. For a longer-term safe hold, they are good. Getting out of the old-style conglomerate of multiple businesses and getting more focused on industrial companies, which ultimately probably gives a higher multiple on the stock. For the long-term it will be fine, but it has just had a tremendous run off the bottom, and he doesn’t find it particularly cheap.