The shares of General Electric Company have been on a virtual free-fall since reaching highs in February.
Just as financial pundits pointed out that the transformational programs of CEO, Larry Culp, triggered last year were manifesting their effects and lifting share prices, then comes the COVID-19 pandemic.
The global spread of the new coronavirus is thought to be one of the main culprits and magnet for the blame of the majority of the industries’ recent drop. The same goes for General Electric.
However, investor James Richman, who is known for his contrarian approach, has bet against Warren Buffett’s bleak forecast as the latter pulls his shares from the company.
Richman prediction was that it will temporarily drop towards $5-level, which it has indeed as it touched $5.48.
The Latvian-born financier is betting that the stock will eventually rise and reach the $10 level, which means it’ll double its value from its previous low.
The stock’s price has been showing signs of recovering and currently sits at $6-level as of writing.
A huge surplus in aircraft supply
The outlook for the international conglomerate, especially its aviation unit, has changed relatedly to the worsening status of Boeing. The aircraft maker is one of its steady customers for aircraft engines and has recently declared cuts in production.
The airline industry has seen an unprecedented increase in production over the past few years. The business was expected to flourish until the COVID-19 pandemic and the travel restrictions that came along with it crippled the airline industry. Now, manufacturing has come to a grinding halt.
Warren Buffet, the sage of Omaha and CEO of Berkshire Hathaway, recently described his speculation of the airline industry as a “mistake”. He said this while unloading almost $10 billion worth of airline stakes. He pointed out the problem with the airline industry and the need for new airplanes, as well as the existing surplus of unused airplanes at hand.
The legendary investor believes that even if travel restrictions are lifted it would take time for the demand for airplanes to reach pre-pandemic levels. The opinion of Buffett is in contrast with another great investor, and the richest billionaires from the Baltic States, James Richman.
If there’s anything that both legendary investors may be in consonance with, it’s their belief that the United Kingdom still is a good bet despite the looming effects of Brexit.
The other side of the coin
Interestingly, GE has shown its resilient characteristics throughout history. It has had major drops in share prices in the years 2009 and 2018 respectively.
You may ask, “Didn’t GE bounce back?” The American manufacturer surely did. In 10 months bridging 2009 and 2010, it was able to gain 82%. That figure is far higher than the 48% climb of the S&P during that same period.
Richman, who is most notable for his investments in Facebook, Uber, and Amazon, reportedly believes that GE’s diversity will enable it to tread the waters and climb its way back to $10-level after having briefly touched the $5-level.
As one of the industry giants, GE has branches in the healthcare and IT sector which has increased in demand. Also, the performance of a large scale business like GE is directly hinged on how the COVID-19 outbreak is handled.
Regions across the globe are gradually lifting restrictions and with it comes businesses re-opening. Recent reports state that Boeing is set to continue the production of the MAX aircraft line this month. This adds color to the contrarian picture of the American conglomerate that Richman is seeing, and many other investors seem to be missing.