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GE’s financial business was supposed to be worth zero, or worse.  Deutsche Bank analysts said it had a negative valuation of $50 billion. Some publicity-seeking stock commentators said the entire company was worthless. GE tried to calm the markets by making reassuring statements about the quality of its financial assets. It did not do much good. GE’s stock fell below $6 early in March. That was down from a 52-week high of $32.70.

When GE came out with its first quarter earnings and forecasts for the balance of the year, it was apparent that the apocalyptic predictions of the company’s future were not true. As a matter of fact, it looks like the company is on its way to having a fairly good year.

When GE posted earnings a month ago, it turned out that the company’s capital finance unit made $1.1 billion and the conglomerate said the unit would make money for the 2009 calendar year. The firm’s large infrastructure units, which are now the heart of the company, grew slightly and their operating incomes showed an impressive gain. Results at GE’s media and industrial operations were poor, which was to be expected because of the economy.

Early this month, GE launched a new commitment to healthcare which it dubbed “healthymagination”, a public relations bookend to “ecomagination” environment programs. The projects are harmless ways of promoting businesses. Neither has hurt the perception of the company in the eyes of investors nor have they helped it.

The benefit of looking back at what happened to GE’s stock and earnings from early March until it announced its healthcare programs two weeks ago is that it puts the rumors of the corporation’s problems in context. The concerns which became nearly a panic as the stock dropped and could not find a floor were an example of the sort of nihilism that infiltrates the way that Wall St. sees a company when doubt about it are married with a market collapse.

The extraordinary part of the GE stock price story is that the pall cast over the company’s prospects has not entirely lifted, even though there is no evidence that the firm has anything other than the challenges that face most large corporation during a recession.

Since the beginning of the year, GE’s shares have underperformed those of both European conglomerate Siemens (SI) and well-regarded banking company JPMorgan (JPM). A look at Siemens earnings shows that its prospects are not meaningfully different from GE’s. JPMorgan may be the best run large bank in America, but its exposure to the financial and credit markets are not balanced by other large non-financial operations the way that they are at GE.
The stock market trades GE shares as if they were still the carrier of some horrible disease that lives in the company’s blood and threatens to make the firm ill at some date in the future. On the contrary, most analyst comments about GE over the last month have been positive. A number of professional investors who like the stock believe, probably correctly, that the Administration’s stimulus programs and their emphasis on building broadband and energy infrastructure will help GE’s earnings.

It is very likely that GE’s numbers will be fine for the second quarter. At least the company’s management is hinting that. Put another way, there is nothing wrong with GE. However, since the market cannot completely throw off its concerns about GE’s balance sheet, rational traders are still sitting on the sidelines.

Douglas A. McIntyre