3 Reasons to Sell General Electric

A sputtering economy, implosions at financial institutions, or just plain bad management -- on any given day, investors can name a number of reasons to sell a stock. Yet while panic is never beneficial to investors, it's good practice to play devil's advocate with investments from time to time.

In Motley Fool CAPS, more than 120,000 members have weighed in on nearly 5,400 stocks and shared bullish and bearish opinions alike.

In the case of industrial conglomerate General Electric (NYSE: GE  ) , a total of 11,258 members have commented on its chances of success. I've already plucked out some of the bullish rationale backing GE today, so here are three counterpoints to consider, courtesy of CAPS:

Financial exposure: GE's finance unit brings in a big chunk of its operating profits. With the unit reporting a 33% drop in income in its recent quarter, some investors fear that things could get worse. Some also question whether it still deserves its AAA credit rating, which it relies heavily on for low-cost funding. Costs to insure GE's debt are much more than other triple-A rated companies, such as Johnson & Johnson (NYSE: JNJ  ) or ExxonMobil (NYSE: XOM  ) , and even for some lower-rated companies such as Goldman Sachs (NYSE: GS  ) .

Inefficient structure: GE's conglomerate structure is bringing in uneven performance across its divisions. In its most recent quarter, the energy group grew while earnings from the consumer and industrial businesses suffered declines. As everyone from Citigroup (NYSE: C  ) to JPMorgan Chase (NYSE: JPM  ) tries to quickly unload assets, GE is still having no luck getting rid of its $30 billion private-label credit card operation and its rail-car leasing business.

More red flags: Companies such as Bank of America (NYSE: BAC  ) have recently slashed their dividends, and for the first time in 32 years, GE suspended its dividend increase. The shares it sold to Warren Buffett cost GE an expensive 10% yield, and the raising of an additional $12 billion in common shares during such a low point in the share price has left more than a few investors squeamish.

Of course, GE has survived and thrived despite dozens of obstacles. But the question about whether the company will continue to do so is why CAPS is such a great resource.

To see what the very best CAPS members are saying now about GE, just head on over to Motley Fool CAPS and have a look -- it's all free, and it's open to your opinion.

More Foolishness:

The Motley Fool Income Investor service scours the market for solid investments paying investors money to hold shares. It has picked JPMorgan Chase, Johnson & Johnson, and Bank of America. See which other dividend-paying companies have the service beating the market by five percentage points today with a free 30-day trial.

Fool contributor Dave Mock still looks both ways before crossing the street. He owns shares of Johnson & Johnson and ExxonMobil. The Fool's disclosure policy was on the short list as a judge for America's Got Talent but just couldn't get along with David Hasselhoff.


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  • Report this Comment On November 10, 2008, at 1:59 PM, Brettze wrote:

    Wall Street is spooked by GM and Ford shutdowns of SUVs and PickUp plants because it will hurt Wall Street's favorite stocks that is Big Oil like Exxon, Chevron and Conoco, etc.. Wall Street dumped GM and Ford stocks to get rid of them so that Toyota and Honda can keep building SUVs and PickUps to help Big Oil profits even bigger in the future ... The poor people will buy trashed old SUVs and PickUps and tow them to trailer parks to live in.... never mind drviing them because gasoline will cost $10 a gallon.. the wealthy can afford them..

    If GM and Ford go out of business, Toyota and Honda will build more SUVs and PickUps that Wall Street needs to make Big Oil even more profitable as more gasoline will be sold... Wall Street is so upset that GM and Ford decided to shut down SUV and PickUp plants to move to more fuel efficient models that Wall Street holds back its purse.... Wall Street is disgusting!!

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