Why did Bridgewater Associates sell its General Electric shares?

Smita Nair

Bridgewater Associates' new positions in 4Q 2013: Important points (Part 6 of 7)

(Continued from Part 5)

Bridgewater Associates and General Electric Co.

Bridgewater sold a 0.10% position in General Electric Co (GE) that was initiated in 3Q 2013 for $12 million.

General Electric Co. reported weaker-than-expected results last month. 4Q 2013 earnings met analyst expectations, but profit margins were below estimates. General Electric posted operating earnings of $5.4 billion, with earnings per share of $0.53, up 20% from the fourth quarter of 2012. Revenues were $40.4 billion for the quarter, up 3% from the same period last year, and $146.0 billion for the year on the back of industrial segments. GE’s industrial businesses posted revenue of almost $30 billion, a 6.1% increase from the previous year. The company had earlier embarked on cost-cutting initiatives to boost margins at its industrial segments. However, GE Capital’s revenue declined 5%, to $11.1 billion.

GE1
GE1

On November 15, the company confirmed plans to exit its North American retail business via an IPO. It plans to sell up to 20% of the business via the IPO in 2014, and the remaining shares will be distributed to GE shareholders in a tax-free transaction. The company will continue to focus its finance business on the core commercial lending activity. The move supports GE’s plans to trim GE Capital and concentrate on its industrial businesses, which comprise 55% of its earnings currently. A Bloomberg report last year cited a Guggenheim Securities analyst who estimated a valuation of $18 billion to $19 billion for the consumer lending business.

Since the 2009 crisis, GE’s share price has been lagging behind rivals such as Honeywell International Inc. (HON) and United Technologies Corp. (UTX), whose financial units are much smaller. Analysts expect the valuation to improve with the cost cuts and spinoff of GE Capital, as the company will focus on its industrial businesses, which make jet engines, locomotives, and other products. However, JP Morgan said following earnings last month, “We see little relative reason to buy GE as we think the stock enters 2014 with few upside catalysts, earnings risk, and an increasingly weak Bull case.”

Continue to Part 7

Browse this series on Market Realist: