Is GE the New Citigroup?
When the financials were taking their lumps, General Electric, which earns almost half its net income from GE Capital, came down accordingly. But now that the sector’s rebounded, CEO Jeffrey Immelt and his firm have lagged behind.
Strange, Cramer said during Wednesday’s Mad Money, because GE has a better balance sheet than the banks that are up 40% or 50% – even 100% in Wachovia’s case.
It was these few sentences in this week’s BusinessWeek that got Cramer thinking:
“Even with the disposal of insurance, the reality is that GE remains a company that's far more exposed to financial services than many investors would like. Back in 2001, when GE Capital made up 40% of the company's net income, Sherin said he wouldn't want that ratio to go above 45%, at least for a few years. Now those businesses are roughly half the net.”
It makes sense GE would get taken down with the rest – there’s tremendous exposure to financial services. But unlike the other companies in this cohort, GE has lost less – $1 billion to subprime compared with billions and billions more by other firms – and the company actually met Wall Street’s second-quarter earnings forecast and beat the Street’s revenue estimates. How many banks did that this season?
Cramer said GE is a buy. The company’s a better financial than most of the other financials, it’s selling off businesses that don’t work, and the infrastructure division is going strong. If only GE was up as much as the other infrastructure names – Fluor, 36%; Jacobs Engineering, 24%; ABB, 17%, all year-over-year. How’s GE over the same time period? Down 28%.
GE’s balance sheet is better even than Cramer’s “financial fortresses” – JPMorgan Chase, Wells Fargo, Bank of America and US Bancorp. There’s also big overseas exposure, and the dividend yield is up to 4.5%.
A major development for GE, though, at least as far as Cramer is concerned, is the recent deal with Mubadala Development. Cramer likens it to Prince Alwaleed's big-stake purchase in Citigroup in 1990. Mubadala is expected to buy so many shares of GE it could amount to a second buyback, Cramer said.
In fact, the Mubadala deal could be the catalyst that puts a floor under GE’s stock – and maybe even sends the company's shares higher.
General Electric is the parent company of CNBC.
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