General Electric* announced on Tuesday that it expects profit to be flat at its big industrial units next year as the world economy begins to recover from a brutal economic downturn. So should investors buy, sell or hold the stock? Robert Maltbie, managing director at Singular Research, and Peter Sorrentino, senior portfolio manager at Huntington Asset Advisors, shared their outlooks.
“We’re seeing indications that [commercial real estate] is beginning to heal, architectural buildings are up, so a lot of the fear of what’s left inside of GE Capital that could go wrong is probably misplaced,” Sorrentino told CNBC.
“There are a lot of headwinds out there…but still, there is a pretty big discount between what it’s worth and where it’s trading today.”
Sorrentino said he expects the stock to trade around $22 to $23 a share in 2010. He told stock owners to "hold" onto GE .
“Long-term, those industrial businesses are worth a lot more, but you’ve got to get capital cleaned up first,” Sorrentino said.
“GE was very aggressive in their use of the government programs, debt issuances under the FDIC umbrella, they took care of their capital requirements for 2009 and 2010, and they’re shrinking their book.”
Counterpoint: Maltbie's View
In the meantime, Maltbie has a “sell” rating on GE and said a good buy point may be around $11 to $12.
“[GE] has to deliver or die a very slow death,” said Maltbie.
“They continue to have to write-down real estate and commercial non-performing loans while, at the same time, very challenged by the operating situation in their industrial book of business. We would urge Immelt to continue to deliver that balance sheet and look for a way to creatively separate the industrial company from GE Capital Service.”
Maltbie said GE faces more problems in its credit services divisions and expects tepid turnaround in core businesses.
“GE has been destroying shareholder capital for years,” he said. “Their cost of capital without government help is about 5 percent and their return on assets is about 1 percent. That mathematic equation can’t remain too much longer.”
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Maltbie does not own shares of GE. Sorrentino’s firm owns shares of GE.