GE Ratings Cut: Is IT A Big Deal??

So, just in case you have been in a cave this am, GE (GE) had it’s credit rating cut.

General Electric lost its coveted triple-A credit rating from Standard and Poor’s on Thursday, as the credit-rating agency downgraded G.E’s long-term debt one notch, to AA+. GE had held the rating for 50 years

S&P said the outlook for G.E. was stable, meaning that further downgrades to its debt rating are unlikely in the next six months to two years.

The S&P analyst who wrote the report says:

GE issued the following statement which said in part,”Standard & Poor’s (S&P) today announced a single-notch downgrade of General Electric Company’s and General Electric Capital Corporation’s (GECC) long-term ratings from AAA to AA+, with a “stable” outlook. The ratings downgrade does not affect GE’s and GECC’s short-term funding ratings of A-1+, which was affirmed by S&P.

The action follows a thorough review of GE’s portfolio by S&P. GECC is one of the only financial services companies in the world with a rating as high as AA+. S&P defines a company with this rating as having a “very strong capacity to meet its financial commitments.” Also, S&P’s “stable” outlook means the rating is unlikely to change in the next six months to two years. GE does not anticipate any significant operational or funding impacts from this change.”

So, what to think. More important than the cuts is the “stable” rating. This downgrade is more bark than bite. There is no material change to operations from it and there is zero effect on its short term borrowing.

Just a week ago with shares at $6 I pondered picking some up but was waiting for a bit more clarity before doing so. It is looking like sitting on my hands may have been a mistake. Shares are up a cool 50% since then. Now, I have not lost any money (in fact my existing GE holdings are enjoying the ride) but have not picked any additional up either.

What to do, what to do, what to do. I resist the urge to buy anything after a 50% run and a 10% market rally, both of what we have just had. We will settle a bit and big run are almost always followed by pullbacks and then I will pick up more. I don’t think I will ever get the $6 price a gain but I think I’ll do much better than then near $10 today.

GE is still a great long term play, I’m just holding out for an even better price

Here are more thoughts on it:

Disclosure (“none” means no position):Long GE

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