Investors’ Big Bet on GE

A recent article in The Wall Street Journal reports that General Electric Co.’s agreement earlier this month to sell a small but rapidly-growing biotechnology business for $21 billion “provided a moment of validation to a group of value-seeking stock buyers who plowed into the stock at the end of 2018 amid fears the company was collapsing.”

The article reports that, in the fourth quarter of 2018, “investors who seek undervalued or misunderstood stocks turned toward GE for the first time in years, buying some $4 billion in aggregate,” (data from S&P Global Market Intelligence), a shift from the recent past “when GE’s biggest buyers were hedge funds.” These investors could provide a much-needed foundation from which the company’s new CEO Larry Culp can execute a turnaround, the article says.

While some investors have faith in Culp and argue that GE’s aviation and health-care units are undervalued, most believe that the “beaten-down” power business will take years to turn around.

But the biotech deal provided evidence that the market’s concerns about GE’s ability to handle its debt load were “overdone,” the article says, adding, “after a period of worrying they were missing a problem, even crazy, value-oriented investors are emboldened in their bets and settling in for a long haul.” 

Notwithstanding the turbulence in GE’s stock price this year, the gains “have put investors in a better mental state than they were in December,” the article notes.