What happened
Shares of industrial conglomerate General Electric (GE -2.11%) tumbled 27% in March, to $7.94 per share, according to data provided by S&P Global Market Intelligence. The stock price hit a low of $6.11 per share on March 23, its lowest share price in 28 years, before rebounding slightly. That was more than double the S&P 500's March decline of 12.5%.
Year to date, GE's shares are down more than 40% and have dropped more than 70% in the last five years.
Image source: General Electric.
So what
Throughout its recent history, General Electric has been plagued by bad timing. It got into the consumer credit business before the Great Recession, made big investments in oil and gas leading up to the oil price downturn of 2014-2017, and decided to refocus on its core business of gas power turbines just as they were falling out of favor.
In March, GE's bad luck showed up again as oil prices crashed and the coronavirus pandemic brought air travel to a screeching halt and shut down manufacturing operations in many parts of the world. Unfortunately, GE's most profitable division is its aviation division, which manufactures jet engines. The market is justifiably concerned about the future of the aviation industry and bid down GE's shares accordingly.
Although GE combined its oil and gas unit with oilfield services company Baker Hughes (BKR -1.00%) and spun the whole thing off as an independent company, GE still owns 36.8% of the new Baker Hughes, a stake it was hoping to sell off to pay down debt. That stake is now worth less than half of what it was at the beginning of the year. Baker Hughes is one of the few major U.S. stocks to have underperformed GE's in 2020, so the market is factoring that in, as well.
Now what
Given the uncertainty in the aviation industry, GE's healthcare division is now the brightest spot in the company's portfolio. The division, which primarily manufactures medical equipment, routinely generates General Electric's second-highest margins (behind aviation).
GE Healthcare manufactures the ventilators that have been critical in treating COVID-19 patients. The company announced on March 24 that it had doubled production of this vital piece of medical equipment and hoped to double it again by the end of June. That announcement stopped the stock's freefall.
However, GE is a massive company. Even if it can quickly ramp up production of ventilators to 10 times the normal capacity, it's probably not going to be enough to offset the problems elsewhere in the portfolio. It's best to avoid this company for now.
