Kramer says he’s buying GE Healthcare on the dip and wishes he could
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Shares of GE Healthcare (GEHC) are down on Thursday, giving Club members the opportunity to invest in the medical technology company at an increasingly attractive valuation. Sellers on Thursday are making a mistake and we would have taken advantage of their poor judgment were it not for the restrictions preventing us from trading stocks. Shares of GE Healthcare fell about 3% on Thursday to just under $78 a share as its largest shareholder General Electric (GE) moves to monetize its GEHC stake and pay off its own debt. The buzz around the deal appears to be weighing down GE Healthcare’s share price. However, this does not change the company’s core principles, including the potential for increased demand for MRI machines in the coming years as new treatments for Alzheimer’s enter the market. GE Healthcare’s largest business unit by revenue is Imaging, which includes sales of MRI and PET/CT machines. “It kills me that we can’t buy [GEHC]Jim Cramer said on Thursday’s Morning Meeting, reminding Club members that we are not allowed to trade the stock he discusses on CNBC TV for 72 hours. “If we hadn’t mentioned it, we would have been buying it very aggressively,” Jim said. Thursday’s drop sent GE Healthcare shares below our $79.47 benchmark, which is usually a welcome development for a newer, smaller position. We initiated a purchase of 325 GE Healthcare shares on May 17th with the intention of increasing them over time. Shares hold less than 1% of our portfolio on Thursday. GEHC 1M Mountain GE Healthcare stock performance over the past month. The main reason we are not considering the sale of GE Healthcare’s 25 million shares by General Electric is that it affects existing shares – in other words, the deal does not increase the number of GEHC shares or dilute existing investors in the process. This means that our stake holdings in GEHC are not declining, and earnings per share will not decrease due to the increase in the number of shares. General Electric retained nearly 20% of GE Healthcare’s stock — just over 90 million shares — following the spin-off of GEHC into a separate public company in early January. In fact, General Electric is now swapping over a quarter of its GEHC shares in a deal with Morgan Stanley. Upon completion, General Electric’s debt burden will be reduced by about $2 billion. At the end of the first quarter, General Electric’s total outstanding debt was $24.5 billion. Under the leadership of CEO Larry Culp, for the past five years, General Electric has focused on its core industrial business and has worked to reduce its debt in the process. So it’s not surprising that General Electric is monetizing part of its stake in GE Healthcare to improve its balance sheet. But it will happen again as GE looks to capitalize on its stake to improve its balance sheet and investors should be aware of this. All in all, one of the reasons a company might retire some of its business—just as General Electric (GE) has decided to do with its healthcare segment and plans to do with its energy division—is to create flexibility for things like reducing the debt burden. GE is expected to spin off its energy portfolio, called GE Vernova, early next year. Bottom Line GE Healthcare shares are down on Thursday for reasons that have nothing to do with the underlying outlook for its business, which continues to shine as a standalone company. Sentiment may have weighed on the stock today because the $78 offer price represents a 3.08% discount to the previous GEHC closing price, but this is typical of secondary offerings. For example, Intel (INTC) announced the sale of its stake in Mobileeye Global (MBLY) the same night GE announced the sale. The 38.5 million share offering, which is also non-dilutive, is valued at a 3.49% discount from the previous close of Mobileye Global. Both seem like good deals based on small discounts and solid long-term prospects for both companies. What an investor should be more careful about is that a dilutive secondary supply is priced at a large discount to the market. These deals are typically done by cash-burning companies that need to increase sales to improve their balance sheets. A large dilutive discount means that investors believe the stock is overvalued. But the key thing to know from this particular deal is that it does not dilute shareholders. So today’s slide looks like an overreaction. Were it not for our trading restrictions, we would have used Thursday’s decline to increase our ownership. (The Jim Cramer Charitable Foundation has long been known as GEHC. For a full list of stocks, see here.) As a CNBC Investor Club subscriber with Jim Cramer, you’ll receive a deal notice before Jim makes a deal. Jim waits 45 minutes after sending a trade alert before buying or selling shares in his charitable foundation’s portfolio. If Jim was talking about a stock on CNBC, he waits 72 hours after a trade alert is posted before making a trade. THE ABOVE INFORMATION ABOUT INVESTMENT CLUB IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIARY RESPONSIBILITIES OR OBLIGATIONS ARE OR ARISING IN CONNECTION WITH YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT IS GUARANTEED.
GE Healthcare booth ahead of China International Trade Fair in Services (CIFTIS) 2022 at China National Convention Center on August 28, 2022 in Beijing, China.
And Haifei | China News Service | Getty Images
General Electric Healthcare (GEHC) decline on Thursday, giving Club members the opportunity to invest in a medical technology company at an increasingly attractive valuation. Sellers on Thursday are making a mistake and we would have taken advantage of their poor judgment were it not for the restrictions preventing us from trading stocks.