WASHINGTON, December 28, 2017: Following up on my previous column here are a few more stocks I’d have to label as speculative bounceback stocks. Our previous list included generally well-known, stable companies that might be safer and more reliable bets for a decent bounce back up in early 2018.
The short list that follows could offer even greater rewards. But things might also end badly for one or more of these speculative bounceback companies, including GE and Navient, in 2018. It all depends on how they navigate problems that brought them to their corporate knees in 2017.
Speculative bounceback stocks for 2018: Top picks
General Electric (GE). This Dow giant has looked puny of late to most greatly disappointed investors. This company’s problems became quite apparent in 2008 when its GE credit and financial business was sucked into the government’s Great Recession bailout system.
But, making matters worse, its highly political and incredibly incompetent CEO, Jeff Immelt, spend the following 8 years sucking up to the business-hostile Obama administration instead of really paying attention to business. His recent replacement, John Flannery, has shaken things up considerably, and his actions include a poorly received (but economically astute) dividend.
This excerpt from a recent briefing.com report (no link) on the company lays things out pretty well:
“The company has simply been performing poorly and has a bloated cost structure. It got so bad that investors, including activist investor Trian Fund Management, finally got their wish with CEO Jeff Immelt announcing in June 2017 he would step down. Immelt’s long tenure (since 2001, taking over from Jack Welch) was initially seen as a positive as the world was entering the digital age.
“However, Immelt’s track record has been mixed at best. In fact, some have called it pretty bad and he should have been removed years ago. He let costs get out of control and made some questionable M&A decisions over the years. One of his biggest moves was having GE getting out of financial services (GE Capital), which once accounted for about half of revenue. Financials have been rebounding recently, so some question whether that was a good idea.
“Also, GE made a number of questionable decisions. GE’s recent $10 bln purchase Alstom’s power unit was mistimed as the coal and gas markets have weakened. In fact, its power unit has really been struggling has its utility customers have been moving more to renewable energy sources, like solar. It also recently combined oil & gas assets with Baker Hughes to create BHGE, which is majority-owned by GE. That deal is already being seen as a mistake by some. Overall, GE has seemed to make big bets on markets that are declining, to the chagrin of investors. In addition to questionable M&A, Immelt has also been criticized for bloated costs, corporate perks and private jets.
“In the past year, GE’s struggles have gotten worse. This has led to the ouster of Immelt, its CFO Jeff Bornstein and several top executives. The new CEO is John Flannery and one of the first things he’s doing is slashing costs. He has grounded GE’s corporate jets and GE’s new headquarters in Boston has been put on hold.”
Why Immelt wanted to move the company’s HQ from expensive Connecticut to expensive Boston is anyone’s guess. But it was typical of Immelt’s bizarre custodianship of this once great American company.
I think Flannery can turn this company around. So do many others. But this speculative bounceback stock breaks the usual mold. I think it will bounce back. But I think it will take at least 2-3 years to show results, so badly did Immelt’s incompetence damage the company. Unlike other stocks in this list, this one will require buy-and-hold in order for a new stockholder to win.
Barron’s offers this opinion on the stock:
“Putnam cited GE as a particularly interesting case in his interview with Barron’s. He feels that the stock has underappreciated potential for a turnaround. The new CEO impresses him with a bold plan to toss aside failed strategies and thus improve the company’s operating performance.”
GE is currently at the bottom of its range and could go lower even after an investor purchases shares based on hopes for a bounceback. I think that extreme patience will be required on this one. But, there’s hope on the horizon, perhaps sooner than anyone thinks. Given that GE shares have been longtime members of the Dow Jones Industrialst, they are at this point likely to end up in the final 2018 Dogs of the Dow list. That alone could give us a decent bounce early next year, as Dogs fans and die-hard bottom feeders snap up these more or less bargain-priced shares. We’ll see.
Navient (NAVI). This one is a bit difficult to describe in simple language. Here’s a laundry list description of this somewhat hard-to=parse speculative bounceback stock via our brokerage’s internal verbiage (no link):
“Navient Corporation provides asset management and business processing services to education, healthcare and government clients at the federal, state and local levels. The Company holds the portfolio of education loans insured or federally guaranteed under the Federal Family Education Loan Program (FFELP). It operates through four segments: FFELP Loans, Private Education Loans, Business Services and Other. It also holds the portfolio of Private Education Loans. It services its own portfolio of education loans, as well as education loans owned by the United States Department of Education (ED), financial institutions and nonprofit education lenders. It also provides business processing services to education-related clients, such as guaranty agencies and colleges and universities. It provides additional business processing services to a range of other clients, including federal agencies, state and local governments, healthcare systems and other healthcare providers and municipalities.”
So far, so good. But did you note that reference to “education”?
Here’s an excerpt from a CFRA (which acquired the S&P analyst publications earlier this year) report:
“We acknowledge multiple lawsuits filed in 2017 by the Consumer Financial Protection Bureau (CFPB) and state attorneys general from Illinois and Washington, and most recently Pennsylvania. The CFPB charged the company with “systematically and illegally failing borrowers at every stage of repayment.”
“We think the Trump administration’s CFPB is less focused on these allegations, and we think associated risks will be manageable for the company.”
In other words, the out-of-control thugs at the illegal CFPB plus colluding attorneys general from True Blue states ganged up on Navient because of its involvement in student loans and other loans, the former being among key areas under assault and takeover by the Obama administration.
That said, it’s not clear to me whether this institution’s practices are entirely above boards or not. But under Trump, this kind of CFPB arbitrariness and Obamacrap is likely to be far less of an issue for many companies going forward. Navient currently boasts a ridiculously low PE of 7.53 and boasts a nearly 5 percent yield, largely as a result of CFPB’s hammering.
Uncertainty makes this speculative bounceback play a risky one. But at $13 and change per share, it might be a risk well worth taking at least briefly, given that Trump is likely to remain as our president despite the Deep States.