Financial Advisors Put General Electric in Cross Hairs After Job Cuts News
US stocks gained more ground last week on the back of the Federal Reserve increasing the key interest rate and investors’ confidence that the new tax bill will pass. In this way, between December 11 and December 15, the S&P 500 gained 0.92%, while Dow Jones and Nasdaq Composite advanced by 1.33% and 1.41%, respectively. The indexes declined on Thursday, with the S&P 500 registering the lowest decline in a month as there was a brief moment of uncertainty regarding the success of the Republicans’ tax plan after Senators Marco Rubio and Mike Lee said that they would not support the bill without changes to child tax credits. However, on the following day, Rubio said that he would support the bill and less than an hour later he was joined by Senator Bob Corker, who had opposed the Senate’s version of the bill, but changed his mind after the GOP made some changes.Following Rubio and Corker’s statements, the stocks jumped to all-time highs on Friday.
On Wednesday, the Dow Jones Industrial Average surged to a record close, while the S&P 500 closed slightly lower, dragged down by the weak performance of financial stocks. Earlier that day, the Federal Reserve increased the key interest rate to 1.25% to 1.50% in a move that was widely expected on the Street.
In corporate news, a number of stocks were in the spotlight last week, particularly Walt Disney Co (NYSE:DIS) and Twenty-First Century Fox Inc (NASDAQ:FOX), which on Thursday confirmed their deal, under the terms of which Walt Disney will buy certain assets from Twenty-First Century Fox, including Film & Television studios, cable and international TV businesses for a total of $52.40 billion.
Financial Advisors kept a close eye on Disney last week, as the stock ranked on the third spot among the 20 most searched tickers, according to TrackStar, InvestingChannel’s official newsletter capturing and analyzing the trends of Financial Advisors. It was trailing General Electric Company (NYSE:GE) and Apple Inc (NASDAQ:AAPL), which ranked in the first and second places, respectively. General Electric Company (NYSE:GE) continues to address the issues that led to its stock losing over $125 billion in capitalization this year and has recently announced several measures, including cutting jobs and halving its dividend. Apple Inc (NASDAQ:AAPL) captured the attention of Financial Advisors and bounced back to the top of the most searched tickers after the company acquired Shazam for $400 million and following reports that it invested $390 million in Finisar Corporation (NASDAQ:FNSR) through its Advanced Manufacturing Fund.
Boeing Co (NYSE:BA) was the fourth most-searched ticker last week, as the company hiked its dividend by 20% to $1.71 per share and announced a new stock buyback program worth $18 billion. The top five most-searched-tickers ranking is bookended by Energy Transfer Partners LP (NYSE:ETP), which last week received approval from the US Federal Energy Regulatory Commission (FERC) to resume horizontal drilling at eight sites in Ohio and West Virginia along its Rover natural gas pipeline. In addition, oil prices inched lower last week as an outage of the Forties Pipeline that transports oil from the North Sea to Britain provided some support, but the strong US crude output and larger-than-expected gasoline inventories reported last week put some pressure on prices.
Let’s now take a closer look at the stock that was the most searched among Financial Advisors last week: General Electric Company (NYSE:GE). At the end of the previous week, on December 7, the company announced that it would cut 12,000 jobs in its power business. This would reduce the electricity division workforce by around 18% and will include both professional and production employees. The move will allow General Electric to further cut costs according to its plan to reach $1.0 billion in structural cost savings, which is part of a bigger plan to cut expenses by $3.5 billion across the entire company. The plan was put in place earlier this year by new CEO John Flannery.
The job cuts were applauded by analysts and investors, who bid up the stock 1.2% higher following the announcement. GE Power is General Electric’s largest division, but it is also struggling due to weak demand for power-generating equipment as renewable energy continues to advance and capture market share from the coal and gas generation. GE is not the only company to suffer from the lower cost of renewables, with Germany-based Siemens AG also announcing plans to reduce workforce by 6,900 positions worldwide and to close factories amid a drop in demand for power-plant equipment.
In other news, on December 8, General Electric declared a dividend of $0.12 per share, which represents a 50% cut from the previous, in line with Flannery’s restructuring plan that was revealed in November. Moreover, last week, the Wall Street Journal reported that the company had conducted an internal review regarding the flying of a spare business jet to accompany the former CEO Jeff Immelt. The practice had been ongoing for years, but investors were surprised when it was revealed in October. The company said that the practice was mostly discontinued in 2014, but an extra jet was still used for overseas trips. Flight records reviewed by the WSJ also confirm that two-plane trips continued until at least this spring.
Overall, analysts seem to approve of the cost-cutting measures put in place by General Electric’s new management, but they are still cautious to recommend the stock, waiting for more clear signs of improvement. 2018 is going to be a transition year for the company, which will show investors whether the company can execute on its targets to reduce costs.