It's a strage situation GE finds itself in. GE is one of the largest firms in the world involved in the development and maintenance of nuclear power. But GE is also becoming one of the largest renewable energy manufacturers as well. One foot in the past and another in the future. While the disaster in Japan continues it gives a bit of a black eye to GE, yet GE is responding with all sorts of assistance ranging from equipment to engineers. And the fact that the nuclear plant that is in the process of melting down is several decades old helps GE distance itself from the disaster.
So why are we talking about nuclear power at a site that is dedicated to solar power and solar stocks as an investment? GE has a huge stake in solar energy manufacturing and installation. Solar power is growing rapidly at GE, just as their wind energy has over the last few years. And solar power is probably going to be the focus of the company now more than ever becuase of the unfolding disaster.
GE is pushing ahead with both solar and wind power, and probably will even more in the coming months and years. The reality is that nuclear power has never been, and never will be, a safe form of energy. In fact it is extraordinarily dangerous, but the fact that there have only been three or four major nuclear disasters in the last 50 years puts everyone to sleep to the constant danger. The Japan disaster is going to wake-up the world. This problem will not be solved anytime soon, and it is going to cost a lot of lives in the process.
So how does this relate to GE, and more directly, to the stock price of GE? The reality is that GE may take a substantial hit to their stock in the coming weeks. Since the disaster struck in Japan GE has only lost $1 off their share price, to currently trade just above $19 per share. There is no guarantee but GE may decline more if the Japan crisis worsens, which now appears inevitable. Let's hope I am completely wrong in this prediction by the way, I would never more like to be wrong than now. The suffering and loss and pending destruction is so substantial it almost makes one not want to even think or talk about it. But we live in this world and this is the reality we face as a global community.
GE is a great company. They are one of the most diversified of all U.S. corporations. The fact is their future business in nuclear may be greatly compromised over the coming days. If that happens the stock price of GE may be punished, as mutual funds, pension funds and other institutions dump their positions. GE may get more of a black eye than they already have.
Let's not forget that at the bottom of the market correction back in March of 2009, GE traded at $7 a share. I remember at the time two years ago feeling stunned that a company with the depth and earnings capability slumped down to $7. Obviously at the time GE Capital was the big problem, and the lack of liquidity was practically wrecking all financials. GE for years before that point had trade from $30 to $42, just as any normal blue chip stock would.
The threat now to GE is not as great as two years, but the pricing of the stock may get nailed because of the emotional and sense of potential liabilities or lawsuits. The point is this, anyone who bought GE back when it was at $7 did a fine job for themselves as a long-term (two year) return on their money. Last I checked a two year investment that yields a 200% return isn't too bad.
So let's keep an eye on GE going forward. I definitely wouldn't get in at $19 or even $15 a share. But if the world gets more frightened and more angry, and there is a lot of fallout (literally and figuratively) then people around this planet are going to be looking to blame someone or something. Workers and politicians in Japan can be fired or jailed. The power company in Japan can be nationalized or get completely new management. But one of the root problems that will eventually come out was that the design of this nuclear plant was just plain stupid. Using an elevator to store the nuclear waste immediately above the nuclear generator is just not intelligent. The design of this facility obviously never conceptualized the fact that the plant may enter a meltdown stage and that all the tons of stored hazardous material immediately above the fires and explosions could make the situation that much worse.
So that's a long way of saying GE may be unduly targeted by politicians, academics, lawyers, the press, activists, and the public. I believe GE is going to take a second and maybe third big public relations hit. And if and when they do, the stock price will be (might be) hammered. So once again we could see a very cheap General Electric, possibly between $10 to $14 perhaps.
What can't be forgotten is that GE has a large stake in the fast growing renewable energy realm. And that area of energy may get a big lift as the world turns away from nuclear power. The future is going to be solar, wind and other renewables. GE is well situated to participate in this expansion.
All this includes a number of ifs, but with the situation in Japan looking quite poor the brutal truth is that GE's future in nuclear power might be limited. However, nuclear power makes up about 1% of all GE revenue. So the company will certainly have a future with or without the nuclear division. And if we are offered an opportunity to buy this American icon again at such low prices as two years ago, then let's buy the shares. This is a developing situation, but watch GE on a steady basis and see if the stock begins sliding. Once again, adversity can be an opportunity.
