Tuesday, December 26, 2017

Buying a beaten down stock? --- GE

At this time of year, a tradition that is year-end related rather than a holiday one is evaluating investments for tax losses and for bargain hunting.  Today a poorly timed buy last month of FNSR was sold as a useful short term loss.  It will be followed to determine if another look comes later.  A value buy that many investors must be looking at is GE.  The issues with that stock have been written about previously, so this comment is solely trading related.

A large position in GE was sold in pieces during the year, completed in October.  Since then the stock has declined further.  Sellers continue to see the value of taking GE losses to offset 2017 gains.  At the same time someone is buying the shares being sold as they must see the underlying value of the company. That is finally stabilizing the shares after being down 44% year do date, and 30% in the last three months.

Based on the most recent data available, of GE's top ten mutual fund holders, seven are index funds and three are funds run by Capital Management and Research in L.A.  They are a huge value and dividend focused manager.  Among discretionary managers other than Capital, there are Harris Trust and Northern Trust(long term private asset managers) and Fidelity(which almost has to own some due to its size and the breadth of its manager's styles).

If a long term belief in GE's components can be mustered, when is the right buying opportunity?  At some price, there is value.  At today's level around $17.50 it, on the surface, looks cheap.  Loss selling continues.  But what happens in early 2018.  Those sellers for tax purposes will go away.  That's good, right.  At the same time opportunistic thinking tax loss buyers now, largely retail, will go away as well.  The result is that the stock can begin to trade on its fundamentals.  There is no guarantee that the stock will bounce after the tax selling inevitably stops.

This week may be a good time to move back in cautiously and then look again in mid-January.

That is the thought process here.  Wish me luck.


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