General Electric Company (NYSE: GE) has a long, long way to go before attaining its 2000 high of $60 per share. This company has vastly under performed the markets, its peer group and any other measuring stick investors want to use. GE was a glamorous stock in the 1980's and 1990's under the watchful eye of CEO guru Jack Welch. He may have gotten out just in time!!
General Electric does suffer from the laws of large numbers.With a $400 billion market capitalization and a revenue run-rate this year of $175 billion, growing this beast is like moving the mountain. Actually, moving the mountain might be easier!. CEO Jeffrey Immelt, a lifer at GE, was hand-picked by Jack Welch back in early 2001, and Immelt took the reigns in late 2001, just after 9-11. His mission is formidable and onerous as GE flourished under Welch. Immelt's tenure has been marred by an under-performing company with a similar under-performing stock. Many shareholders and analysts, including yours truly, have done the back-of-the-envelope analysis and can say that GE broken up into various public units is worth more than $50 per share. The stock is currently at $39.15, a good 20-25% below break up value.
I have argued that breaking up GE would be good for the shareholders and its employees. New CEOs and boards of directors for the separate entities would bring new ideas, fresh perspectives and individual company expectations. GE is not only an American company, but a global giant. GE has operations and sell its products world wide.
Immelt appears to have the stock market winds at his back. The stock has lifted about $3 in the past month or so and institutions are looking seriously at the name again. One institution that i worked with for 15 years is going from an "underweight position to an overweight" position. This fund manager is adding about 5 million new shares of GE to his mutual fund. The reasoning is shareholders are now in a win-win situation: either GE does, on its own merits, rise 20-25% in value, or the shareholders will demand 'alternative strategies". The dividend payment is in good shape and very well covered by its earnings flow, but shareholders are looking beyond just dividend pay. They want to see capital appreciation.
I have been recommending GE to the members of my web site since early this year. It is not a sexy, could-triple-your-money kind of stock, but it is under valued vis a vis its asset and break up value. So, let's see if GE's management can guide the ship through these waters and actually grow the value of this giant...
Georges Yared is the CIO of Yared Investment Research.
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Reader Comments (Page 1 of 1)
6-20-2007 @ 11:33PM
Elvis Isaac said...
Sounds like a similar self-serving comment that were made by Citi Group. Wall Street and the investment banking community are looking to gain large commissions, at the expense of the company and its employees.
GE's size provides great advantage in the market place. By the way the divisions name is GE Aircraft Engines.
You mention GE money, but the infrastructure division has produced great products, which Aircraft Engines is a part, including new technology in generators. Product differentiation is the key to market success. Copy-cats cannot copy such products quickie to make them a commodity item.
Many other companies could learn from this strategy and invest in new technology to stay competitive.
6-21-2007 @ 7:17AM
Michael Schneider said...
GE has looked good here-- Jeffery Immelt has been buying stock on a fairly regular basis and he recently (April 2007)bought 20,000 shares on the open market although there has been more insider selling than buying. GE is in many good areas like defense, medical products and energy (especially alternative power and nuclear). Yahoo Finance shows it trading will trade at a PE of 15 based on next year's earnings expectations. Some say GE has broken out into new ground technically. This week, GE has gained a lot of notice from the Paris Air Show where it has received many new orders for aerospace products. It has an "unprecedented backlog" in jet engines. It also has a good dividend payout (near 3%) and there has been a lot of talk about them spinning out NBC- just speculations as you say but this morning analyst Daniel Manion said it could happen as a result of institutional pressure and that would be a positive catalyst for the stock.. Also, large caps have come into vogue on Wall Street. Bloomberg this morning highlighted the stock and noted that 17 analysts have buy ratings on the stock and none say to sell it. Analyst Daniel Manion said it can go to $50. Negatives include the fact that the stock has made a move and it has a big financial component which could expose GE to stock market reaction to higher interest rates.
Legendary investor Jim Rogers has been down on the stock for some time. a few of his comments on the stock and many other stocks and commodities can be found (yellow label) in the Channeling Jim Rogers section (near the bottom)at http://www.Barrelomoney.com.
6-21-2007 @ 8:33AM
Bruce E Warnock said...
Georges, as you know from past comments, we are retired folks and owners of GE stock for a long time. We also look back at the year 2000 and the $60 price with dismay.
Time has come to take a close look at Jeff Immelt but GE has refused to separate the position of CEO and Chairman of the Board, and that must come first. We also own and have read the book "Jack - Straight from the Gut" and find it hard to see why Immelt is still there. Look at what former GE executive Nardelli did to HD and what it cost to get rid of him. Sure glad he did not get the top GE spot.
Spinning off or selling parts of GE that do not fit into its great infrastructure business makes sense to me but Immelt would not want to give up his control, so I do not see this under his reign.
When a great company like GE languishes for over 7 years, it is long past time to look at its management. What is the Board waiting for?
6-21-2007 @ 10:11PM
A. Kosmetatos said...
Georges,
Thanks again for a great article. Imelt has failed to deliver for 5 years and this bump in the stock is to little and to late. 20-25% would make me a happy camper and would sell my holdings at that point if Imelt continues as CEO.
AK
7-25-2007 @ 9:27PM
RENA said...
I am a retired G.E. employee, and cannot believe how low this stock has gotten. In recent years we saw the stock split when it got to $100 and over....it happened every few years.
I have never seen it stay this low.
Maybe we should get back Jack Welch to turn it around!
C'mon, G.E., DO something to get the stock over $100 once again and split! We retirees need the money we invested years ago.....