Investors who want to know what went wrong in the accounting department at General Electric Corp. (GE, Financial) can read about it in a class-action lawsuit filed this month.
The suit in the U.S. District of Connecticut was filed just two days after GE divulged a $6.2 billion mistake in calculating costs for its run-off insurance business. It accuses the company’s former leadership of being aware of the problems for years and doing nothing to fix them, or tell anybody about it.
It’s a juicy read, especially if you like accusations backed up by old earnings reports.
Problems, the suit says, erupted over five years ago when the GE Capital program began losing ground. Since 2013, it had been experiencing increasingly low earnings and revenues.
Over time, GE didn’t disclose problems to investors even as the fund continued to amass shortages.
Then, to make the problem even worse, it failed to allocate sufficient reserves to make up for growing payouts. The hole just got bigger and bigger. In the end, the company accrued “billions of dollars in unreported impairment charges.”
In recent days, the company has been barraged with bad publicity. Barclay's is calling for GE’s removal from the Dow Jones Industrial, a spot it has held for over a century. (This has not happened. The stock is still part of the index.)
What’s more, the Securities and Exchange Commission is all over the company’s books and file folders. And don’t forget those lawsuits that are screaming “fraud” and making highly unfavorable allegations.
But that’s the nadir, says guru investor Mario Gabelli (Trades, Portfolio). Go buy it, Gabelli declared early this week. At $16 a share, it hasn’t been cheaper since 2016. It has never been a better time to buy it.
Gabelli is buying GE. Why? He says key portions of the company are strong. He likes the new management.
Once the SEC finishes its job, and some fixable issues get sorted out, the stock should go up. How far? The guru investor predicts the stock will be in the $20s in two years.
And perhaps, by then, the stock will be welcomed back into the ranks of the historic Dow Jones Industrial Average.
In afternoon trading, GE stock was selling for $16.13 a share, up 1.13%.
