Shares of GE Healthcare ( GEHC ) are falling on Thursday, giving club members an opportunity to invest in the medical technology company at an increasingly attractive valuation. Sellers make a mistake on Thursday and we would be taking advantage of their misjudgment if it weren’t for the restrictions that prevent us from trading the stock. Shares of GE Healthcare fell about 3% to just under $78 apiece on Thursday, as its largest shareholder General Electric ( GE ) takes steps to cash in on its GEHC stake and pay down its own debt. The buzz surrounding the deal appears to be dragging down GE Healthcare shares. But that doesn’t change the company’s compelling fundamentals, including the potential increase in demand for MRI machines in the coming years as emerging Alzheimer’s treatments come to market. GE Healthcare’s largest business unit by revenue is Imaging, which includes sales of MR and PET/CT machines. “It kills me that we can’t buy it [GEHC],” Jim Cramer said on Thursday’s “Morning Meeting,” reminding Club members that we are not allowed to trade any stocks he discusses on CNBC TV for 72 hours. But as always, there’s nothing stopping us from telling members what we’d decide otherwise “If we didn’t mention it, we’d be buying it very aggressively,” Jim said. development for a newer, smaller position.We started our holding of 325 shares in GE Healthcare on May 17th with the intention of increasing it over time.The stock holds less than 1% weight in our portfolio on Thursday GE Healthcare GEHC 1M Stock Performance Over the Last month. The main reason we’re looking at General Electric’s sale of 25 million shares of GE Healthcare is that it includes existing stock—in other words, the transaction doesn’t increase GEHC’s stock count and doesn’t dilute existing investors in the process. That means our percentage ownership in GEHC is not declining and earnings per share will not be diluted by more shares.General Electric retained nearly 20% ownership in GE Healthcare — a total of just over 90 million shares — after spinning off GEHC into a separate publicly traded company in early January. Basically what’s happening now is that General Electric is swapping over a quarter of its GEHC stock in a deal with Morgan Stanley. Once completed, General Electric’s debt load will be reduced by about $2 billion. At the end of the first quarter, General Electric had total debt of $24.5 billion. For the past five years under CEO Larry Culp, General Electric has leaned on its core industrial business and worked to reduce its debt in the process. So it’s no surprise that General Electric is cashing out some of its stake in GE Healthcare to improve its balance sheet. But it will happen again as GE looks to cash in on its stake to improve its balance sheet, and investors should be aware of that. In general, one of the reasons a company may decide to sell part of its business — as General Electric (GE) has decided to do with its health care segment and has plans to do with its energy division — is to create the flexibility to doing 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 its underlying business outlook, which as a standalone company is still clear. Sentiment may have turned on the stock today as the offer price of $78 represented a 3.08% discount to GEHC’s previous closing price, but that 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 at a 3.49% discount to Mobileye Global’s previous close. Both seem like good deals based on small discounts and solid long-term prospects for both companies. An investor should be more careful when a dilutive secondary offering is priced in the market at a significant discount. These deals are typically made by cash-burning companies that need to issue more sales to improve their balance sheets. A big discount on a dilutive transaction means investors think the stock is overvalued. But the key takeaway from this particular transaction is that it doesn’t dilute shareholders. Today’s picture therefore seems like an overreaction. If not for our trading restrictions, we would have used Thursday’s declines to strengthen our holdings. (Jim Cramer’s Charitable Trust is long GEHC. Here’s a full list of stocks.) As a CNBC Investing Club with Jim Cramer subscriber, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling shares in his charitable trust’s portfolio. If Jim was talking about stocks on CNBC TV, he waits 72 hours after the trade alert is issued before he executes the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND PRIVACY POLICY ALONG WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION SHALL EXIST OR CREATE BY YOUR ACCEPTANCE OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO PARTICULAR RESULT OR PROFIT IS GUARANTEED.
GE Healthcare’s booth is seen outside the China International Trade Fair for Services (CIFTIS) 2022 at the China National Convention Center on August 28, 2022 in Beijing, China.
Yi Haifei | Chinese Intelligence Service | Getty Images
GE Healthcare ( GEHC ) shares slid on Thursday, giving club members an opportunity to invest in the medical technology company at an increasingly attractive valuation. Sellers make a mistake on Thursday and we would be taking advantage of their misjudgment if it weren’t for the restrictions that prevent us from trading the stock.
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