Avoid "Massively Overleveraged" Companies Like GE and Boeing, Analyst Says

In early July, Charles Ortel, managing director with Newport Value Partners, told Tech Ticker General Electric's stock is only worth $2 per share.  Since that appearance, GE agreed to pay $50 million to settle SEC fraud charges and Goldman Sachs upgraded the stock to a 'buy' saying the company won't have to split off its financing arm, GE Capital.  The shares are up from under $11 to more than $13 today.

Regardless, Ortel is sticking to his bearish guns: "Absolutely," he still recommends GE as a short.  In fact, "the situation is even more dangerous now," he claims. 

Ortel's research shows GE Capital is still "massively overleveraged," especially considering the risk that rising nominal interest rates could create a second wave of the financial crisis. "You have a total amount of debt at GE Capital that is $498 billion," according to his data. "To put that number in perspective, the total external debt of Brazil is $160 billion."

It's in that same vein Ortel is wary of another industrial behemoth, Boeing.  He says the combination of "skinny profit margins" and "leveraged customers" in a landscape of economic turmoil and a potential swine flu outbreak - which could ground air travel - adds up to a company he recommends avoiding.

Bottom line: "Any company that basically assists its customers to buy its products using leverage is a company that we think has a broken business model in 2009-2010."

Two items worth noting here:

• Ortel first made a bearish call on GE’s stock (and a bullish one on its credit default swaps) back in August 2007, long before problems at GE Capital were evident to most investors.
• Neither Ortel nor his firm have positions in GE or Boeing stock, but their research is sold to hedge fund managers and other institutional investors who very well might.