BY MALCOLM BERKO
RELEASE: WEDNESDAY, JANUARY 10, 2018
Stinky GE Still a Buy
Dear Mr. Berko: My stockbroker wants me to buy 400 shares of General Electric. Is he nuts? — JS, Moline, Ill.
Dear JS: Last June, Jeff “Big Melt” Immelt, who took control of General Electric (GE-$18.47) from the iconic Jack Welch just before 9/11, announced he’d be stepping down as CEO. Good! He’s been replaced by John Flannery, a 30-year GE veteran who ran the company’s healthcare division. Huge yawn! Most doubt that Flannery and his personal broom can hurry GE’s price recovery. So far, his appointment has made as much difference to GE as would the advent of another fly to a slaughterhouse. That should change if Flannery’s broom can muck out the executive suite and remove the stench from the Augean stables in GE’s useless boardroom.
Recommending GE at $25 several years ago was among my biggest disappointments since buying 250 shares of Studebaker-Packard in 1962. That company shut its doors in 1966. GE, with $126 billion in 2016 revenues and $13.4 billion in profits ($1.07 a share), wasn’t earning enough to pay its 96-cent dividend, so Flannery reduced it to 46 cents, saving the company over $4 billion a year. GE’s not in trouble; it just lost its mojo.
GE’s established dominant product categories — turbines, locomotives/transportation, lighting, medical imaging, renewable energy, aircraft engines and service contracts — do very well. Its service contracts business generates margins in excess of 30 percent.
GE’s problem is fivefold:
1) Integrating the power and grid business of Alstom, a French company GE purchased for $14 billion in 2015, has proved more difficult than anticipated. Slow penetration in the European power infrastructure is disappointing. Still, 30 percent of the world’s electricity is generated by GE equipment. Recent events suggest modest success and profits this year.
2) Volatile fossil fuel prices are hurting GE’s oil and gas segment, an important growth platform for its slowly growing industrial portfolio. However, oil prices are expected to remain at current levels ($55 to $62 a barrel) through the first half of 2018.
3) It may take several years for GE’s industrial division to replace the significant, albeit slightly worrisome, earnings from GE Capital, which Immelt stupidly unwound in 2015.
4) Observers believe that integrating oil field service provider Baker Hughes’ business, which GE purchased for $7.5 billion, will be more difficult than anticipated, as the sale was predicated on oil’s trading at $60 a barrel.
5) Finally, bigger isn’t better. GE is so ginormous (301,098 employees in 180 countries) that it’ll take GE’s brain a week to discover that competitors are eating its tail.
However, GE should slowly stagger forward, and I’m comfortable staggering forward with a 48-cent dividend yielding 2.7 percent. If 2018 revenues come in at $132 billion and produce profits of 90 cents a share — as is projected — GE may even raise its dividend to 50 cents this year. If Flannery can hold the reins steady during the coming four years, analysts believe that net profit margins could improve from 8.9 percent to 15.3 percent. Analysts believe that 2022 revenues could come in at $165 billion, that earnings could reach $2.20 a share and that the dividend could be increased to a buck again. That’s a potential 5.5 percent yield at today’s $18.47 price. There are quite a few ifs, but if those ifs can reach reality, aficionados believe that GE could trade in the $50s by 2022.
There’s impatient buzzing by some activists suggesting the best way to maximize shareholder value would be to divide GE into four independently traded companies — dealing with medical imaging, aircraft engines, oil and gas service and equipment, and power generation, respectively — each with profitable service contracts. These four independent companies could have a combined share value of $50 to $60 within 18 months.
Your broker gave you good advice. GE’s long-term debt is declining, while book value, return on capital, return on equity and cash flow are improving. Still, GE’s board members have egregiously failed shareholders and management. These toadies, who gleefully fleeced millions of dollars in perks and directors’ fees, are responsible for GE’s humiliating performance. They should be pilloried, placed in stocks, publicly whipped and then prosecuted for malicious misfeasance. Buy 400 shares, but hold your nose!
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
COPYRIGHT 2018 CREATORS.COM
Pump Prices to Edge up After Attack on Iranian General, but Long-Term Effect Unclear
Motorists soon will see the effects of President Donald Trump’s decision to kill a prominent Iranian general. Whether pump prices rise a little or a lot depends on how quickly international tensions intensify.
Florida gas prices climbed an average of 7 cents a gallon in the past three days and could increase an additional 5 cents, AAA – The Auto Club Group said Monday.
The 7-cent increase was coming even before the U.S. air strike Thursday that killed Iranian Maj. Gen. Qassem Soleimani. That hike was a result of a rise in the price of crude oil in December.
News of the targeted killing of Soleimani sent crude oil surging nearly $2 per barrel on Friday. An increase of that magnitude typically translates to a 5-cent hike at the pump, AAA said.
The U.S. benchmark for crude oil traded Monday just above $63 per barrel, the highest level since May 2019. The price of oil makes up about half the price of a gallon of gas.
“What happens in the Middle East can have a direct impact on Americans’ daily lives by influencing what they pay at the pump,” said AAA spokesman Mark Jenkins. “Crude prices rise when there’s a threat of war, because of concerns over how the conflict could hamper supply and demand.”
Oil analyst Tom Kloza of energy firm OPIS agreed that pump prices in Florida likely will rise about 5 cents a gallon in the coming days.
“Then I have a hunch that things are going to calm down,” Kloza said Monday. “I don’t think we’re looking at $3 gas.”
The national average pump price Sunday was $2.585, while the Florida average was $2.526, AAA said.
Kloza expects only modest increases in part because of the timing of the attack. January is always a slow month for gas consumption in the United States.
There’s also the reality that sanctions leave Iran unable to export oil. Complicating the calculus is Iraq’s response to the U.S. attack. The drone strike on Soleimani took place in Baghdad, and some Iraqi politicians considered the assault an affront to Iraqi sovereignty.
While there’s no Iranian oil supply to be disrupted by a war, Iraq is an important producer.
Trump keenly watches oil prices and realizes that a price spike might erode his support in this year’s presidential election, Kloza said.
At the same time, Kloza added, “This president has proven to be unpredictable.”
Trump’s response has been typically uneven. Delivering an official statement at the Mar-a-Lago Club in Palm Beach, Trump’s tone was measured. He said the targeted killing was designed to pre-empt Soleimani’s planned attacks on American diplomats and soldiers.
“We took action last night to stop a war,” Trump said Friday. “We did not take action to start a war.”
However, over the weekend, Trump took to Twitter to threaten attacks on Iranian cultural sites.
“The United States just spent Two Trillion Dollars on Military Equipment,” Trump wrote Sunday on Twitter. “We are the biggest and by far the BEST in the World! If Iran attacks an American Base, or any American, we will be sending some of that brand new beautiful equipment their way…and without hesitation!”
##IFRAME_1##Iran has vowed vengeance, but military experts say the nation isn’t powerful enough to wage a direct war against the U.S.
“It’s still far too early to know how much of an impact this conflict will have overall on prices at the pump,” AAA’s Jenkins said.
Stocks Rally Despite Impeachment News
Stocks rose on Thursday as investors looked past the news of President Donald Trump’s impeachment as well as mixed U.S. economic data.
The Dow Jones Industrials advanced 53.85 points to begin trading at 28.293.13
The S&P 500 recovered 4.93 points to 3,196.07
The NASDAQ added 19.39 points to Wednesday’s all-time record, at 8,847.12.
The S&P 500 is up nearly 7% since House Speaker Nancy Pelosi launched a formal impeachment inquiry in September.
Cisco Systems was the best-performing Dow component, rising 1.6%. The consumer staples and real estate sectors led the S&P 500 higher, gaining 0.4% each. Micron Technology shares also contributed to Thursday’s move higher. Conagra shares surged more than 14% and were on pace for their biggest one-day gain since Oct. 16, 1989.
Micron shares climbed 3.5% on the back of strong quarterly results. The chipmaker posted earnings per share and revenue that topped analyst expectations.
On the economic data front, weekly jobless claims fell to 234,000 from 252,000 the week before. However, economists expected claims to fall to 225,000.
Meanwhile, the Philadelphia Federal Reserve’s business conditions index fell to 0.3 in December from 10.4 in the previous month. Economists expected the index to slip to 8.
The Democrat-led House of Representatives voted Wednesday to impeach Trump for abuse of power and obstruction of Congress. Trump became only the third president to be charged with high crimes and misdemeanors and will now face a trial in the Republican-controlled Senate.
Prices for the 10-Year U.S. Treasury were lower, raising yields to 1.94% from Wednesday’s 1.93%. Treasury prices and yields move in opposite directions.
Oil prices gained seven cents to $61.00 U.S. a barrel.
Gold prices moved forward $1.80 at $1,480.50 U.S. an ounce. Copyright © 2019 Baystreet.ca Media Corp. All rights reserved.
Washington State OKs Some of the Nation’s Toughest OT Rules
SEATTLE — Washington state is adopting some of the nation’s most aggressive overtime rules, restoring protections for hundreds of thousands of salaried workers and taking what supporters say is a crucial step toward rebuilding the middle class.
The Department of Labor and Industries finalized the rules Wednesday and will phase them in by 2028. By that time, salaried workers making up to about $83,400 a year will be entitled to time-and-a-half pay if they work more than 40 hours per week.
Workers making more than that could also get overtime unless they are certain types of professionals — such as those with higher degrees — or unless they are truly managers or executives, as demonstrated by their ability to and fire, direct other people’s work or make significant business decisions.
Many job categories will be affected, including shift managers at restaurants and retail establishments, office managers, some medical workers and other white-collar staff, officials said.
“We need to make sure the middle class shares in our state’s prosperity,” Washington Gov. Jay Inslee said in a news release. “Overtime protections ensure workers are fairly compensated when they work more than 40 hours in a given week — time that would otherwise be spent with their families and in their communities.”
Employees who are paid hourly have long been entitled to overtime. But salaried workers have generally been entitled to it only if they make less than a certain amount: about $23,660 under federal law, or more where state laws are more generous.
Those thresholds may have worked decades ago, when they meant that nearly two-thirds of salaried workers nationally were covered by overtime protections. But after a recession in the 1970s, lawmakers largely stopped updating them. Washington’s has been stuck at $13,000 since 1976.
As people’s salaries rose with inflation, they found themselves no longer eligible for overtime. Businesses have also been able to convert hourly workers into salaried ones who make just more than the threshold as a way to avoid additional staff or paying overtime.
In other cases, workers have been classified as managers when their actual duties more closely resemble those of hourly workers, officials said.
By some estimates, as few as 7% of salaried workers across the country are now entitled to overtime.
The federal government and several states, including California, New York, Pennsylvania, Colorado, Michigan and Massachusetts, have recently updated or started to update their overtime rules, but none have adopted a target threshold as high as Washington’s, said Paul Sonn, state policy program director with the National Employment Law Project.
The rules adopted by the Trump administration will raise the threshold to cover workers making up to $35,308 a year — a significant cut from the $47,000 limit proposed by the Obama administration.
“The overtime threshold is to the middle class as the minimum wage is to low-wage work,” said Nick Hanauer, a Seattle venture capitalist whose think-tank , Civic Ventures, advocates for progressive economic policies. “It is the indispensable labour protection for middle class people.”
Business groups in Washington have agreed that the state’s rules needed to be updated, but they criticized the plans as drastic. The Association of Washington Business, warned when the proposed rules came out in June that they would be a shock to many businesses and that they could particularly hurt nonprofits.
The organization warned that many businesses might convert salaried workers to hourly ones, reducing scheduling flexibility.
After hearing extensive public comment, the department added two years to the phase-in period. The threshold will increase incrementally until it reaches 2.5 times the minimum wage — about $83,400 — by 2028. The rules will phase in more slowly for businesses with fewer than 50 employees.
The department estimates that by the time they are fully implemented, the new rules will give overtime protections to about 260,000 workers who don’t have them and strengthen overtime protections for about 235,000 others. Affected workers will also become eligible for sick leave and retaliation protections.
At a news conference Wednesday, Labor and Industries Director Joel Sacks gave an example of one type of worker who will be protected : a shift manager who makes $40,000 a year but is expected to work 60 hours a week.
Under the new rules, that worker will be paid overtime for the additional hours, or the business will need to additional staff.
“It’s fair, it’s right and it’s long overdue,” Sacks said.
Among those who might be helped is Victor Duran, a co-manager of a sports apparel store south of Seattle. He said he makes about $52,000 a year and doesn’t get overtime, but is required to work at least 45 hours per week — and up to 60 during the holidays.
“We say bye to the family at the beginning of the season and say we’ll see them after Christmas,” Duran said.
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