JPMorgan Analyst Rises From Obscurity With a Killer Sell Call on GE

(Bloomberg) -- Jim Cramer couldn’t resist a dig.

“Please do NOT tell Steve Tusa from JPMorgan that $GE is over $15,’’ the CNBC host tweeted in May, two years after Tusa, a JPMorgan Chase analyst, hazarded the kind of report that makes or breaks a career: He was the lone stock picker to urge investors to sell General Electric Co., the one-time American industrial icon.

JPMorgan Analyst Rises From Obscurity With a Killer Sell Call on GE

It was arguably the gutsiest call since Meredith Whitney’s bearish report on Citigroup Inc. in October 2007, before the bank needed to be saved by taxpayer and Federal Reserve bailouts. It worked out for Tusa. He rode the bear from just over $30 a share in May 2016 to Wednesday’s $6.71, a decline of more than 77 percent. Tusa changed his outlook Thursday, upgrading GE to “neutral,’’ and shares soared more than 7 percent.

The original call was “consequential,” said Todd Lowenstein, chief equity strategist at Highmark Capital Management, which sold its GE shares this year. Tusa “had a very sound argument for his bearishness on GE. He did a lot of hard work, which was obviously validated in the marketplace.

“He’s not going to get every one right,” Lowenstein added. “When you get a big noteworthy one, it does garner a disproportionate amount of attention. And he’s getting that.”

Pulling String

Tusa told Graham & Doddsville, the newsletter produced by students of the Columbia University Business School, that his deep knowledge of the company gave him an edge over generalists also covering GE.

“You start by pulling a little bit of string, but soon you try to pull as much as you can,” Tusa said in a Q&A featured in the Fall 2018 edition. “The more you pull that string, the more your knowledge base enables you to understand data points and news flow and put them in the proper context.”

Tusa said he noticed GE’s free cash flow guidance included a dividend from the sale of GE Capital, which was a one-time item. Even this year, he said, some of his competitors were including the dividend in free cash flow.

“When you have a better base of knowledge than anyone else, go all in and be as vocal as possible,” he said. “I don’t want to overstate the drama, but that’s it.”

JPMorgan spokeswoman Gurpreet Kaur declined to make Tusa available for an interview.

Sell-Side Analysts

One group doubtlessly celebrating Tusa’s influence are his fellow sell-side analysts, who’ve been through a tough time. Passive investing, automated trading and unfriendly new European financial rules have rendered many of them expendable. Ten years of rising equities boosted by the Fed’s low rates have diminished their influence, and when firms make cuts, the analysts suffer.

The grumpiest bear on Wall Street, and occasional CNBC talking head, changed all that, at least for a day or two. Tusa, a 43-year-old family man living in New Canaan, Connecticut, played ice hockey at Dickinson College in Carlisle, Pennsylvania, around the same time his favorite professional team, the New York Rangers, won the Stanley Cup.

Great Influence

He’s hardly a household name, even on Wall Street, but he wields great influence with GE stock investors. That sway has resulted in an uncanny ability to jolt the company’s stock. GE shares slumped on all but one of the 13 times Tusa updated his view on GE from May 2016 through December of this year.

Former colleagues describe Tusa as competitive, comfortable in a contrarian role and enthusiastically studious. GE frequently issues its regulatory filings on Friday afternoons, and Tusa became famous for printing them out and bringing them home for perusal over the weekend. Tusa told the Columbia students he and his team have written 1,500 pages on GE in the past two years.

“Tusa the Great!’’ CNBC’s Cramer called him in a June 19 tweet. “I gotta hand it to that guy ... Jamie give him a raise after this GE fiasco.’’

©2018 Bloomberg L.P.