GE hit $8 in 2008. If you short the stock with some patience, this stock is, in my opinion, a low-risk bet that it will at least drop 50% over the next 12-18 months. - January 29, 2017 issue of Short Seller's Journal
General Electric has been a no-brain'er short this year. I recommended it as short on January 29th. The "legendary" Jack Welch practically invented corporate financial engineering and accounting manipulation as we know it today (sorry if you are under 35 managing money and don't know who Jack Welch or what accounting manipulation is).
So imagine my shock when GE has been reporting earnings "misses" for several quarters, including the most recent. GE must be the only company in the S&P 500 that can't seem to beat Wall Street's quarterly ritual of essentially laying an earnings "bar" on the ground over which companies "proudly" step each quarter. On the other hand, it's likely an indicator of just how bad the real numbers are at GE. I guess Welch's legacy is finally haunting the Company. And for Halloween investors might be getting a dividend cut in their "treat bag" from GE.
Back at the end of January I said this in the Short Seller's Journal:
For it's latest quarter, operating earnings dropped year over year despite a slight year over year increase in revenues for the quarter. It's operating earnings also dropped for the first nine months of 2016 vs. same period in 2015. For the first 9 months of 2016, GE's operations burned cash, although they'll attribute that to "discontinued" operations, which burned $5.3 billion for the period.
Companies often classify money-losing businesses as "discontinued" with the intent to sell them. But until the disco'd businesses are sold, GE has to live with them. This is yet another earnings management technique, as GE can then separate out the "discontinued" business numbers from the "continuing operations" for as long as GE still controls the disco'd businesses. This enables GE to present an earnings number that does not include the losses associated with the disco'd businesses. It thereby enables GE to present a managed "GAAP" earnings metric that is significantly higher than the true earnings of GE's operations.
GE reported its Q4 earnings on January 20th. It has not filed a 10Q yet but it "met" earnings expectations and missed sales. The oil-related business is one of the heavy weights on GE's operations. Despite "meeting" estimates and a rosy analyst spin on the earnings report, the stock dropped 4.7% over the next two days, diverging very negatively from the Dow, which moved higher, up and over 20k.
You can see from the chart on the previous page that GE plunged below its 50 and 200 dma's and failed to trade back up to the 200 dma while the Dow was hitting 20,000. This is a very bearish chart and it looks like big funds are dumping their shares. This is a more "conservative" short-sell play but the stock could easily drop 50% over the next 12-18 months.
Wall Street has finally begun to downgrade its earnings forecasts and stock price targets on GE. I guess better late than never but anyone who listened to Wall Street in January expecting GE to be at $40 now is having a hard time sitting down without pain.On the other hand, GE brings good things to short-sellers. There's stocks that are falling out of bed every day. In the latest issue released yesterday, I presented a home construction supply company who's stock has gone parabolic that, based on the fundamentals, is more of a lay-up short than GE seemed back in January. You find out more about the Short Seller's Journal by clicking here: Short Seller's Journal info.
This was emailed to me yesterday from a subscriber: "Sometimes I grow weary about short selling in this market, and then you come up with one good one, that shows me it really can fall down. I almost gave up on FCAU [SSJ's recommendation to short Fiat Chrysler in the Sept 24th issue], but did not. Keep up the good work!"