It has been no secret that I am a big fan of General Electric (GE) and picked it as my personal stock pick of the year for 2013. Prior to that, I urged investors to consider owning the stock back in November of 2011 (click here), when the stock price was under $15.00.
The long road back from utter investor disdain, has not been an easy one for the management team of GE, especially for Jeff Immelt, CEO. He has probably been the most maligned CEO in the face of doing a VERY good job that I have ever witnessed. While it is a fact that he broke a promise not to cut the dividends, I believe he had no choice, since the company had been caught up in the financial mess with GE Capital.
After overcoming the odds, the company has embarked on a plan to deliver shareholder value while focusing on the core business segments, WHILE reducing reliance on the GE Capital division. More evidence of that has recently been announced.
The company focus will be as follows:
- Energy (review the beginning)
- Healthcare (review here)
- Medical Equipment (review this project)
- Environment (review this endeavor)
There are plenty of other business segments that GE has been growing, and by reducing GE Capital, and using the cash from that division to fund other areas, including building shareholder value, the company is repositioned for dramatic growth in a relatively short period of time.
As I noted in my article announcing GE as my pick of the year, I suggested that the stock could reach new highs in 12-18 months ... here is what I said:
"GE has all of the ingredients to finally break out of its multi-year rut and will pay a healthy dividend while we wait for the capital appreciation from these levels.
GE has a very strong balance sheet as well as a huge amount of cash on hand, which supports its price as well as dividend payouts for the long term."
Fortunately, I was accurate back then, but I think we can see a share price well above $40.00 in the next 12-18 months, if not sooner.
I might even be too conservative.
GE Capital Is Becoming Smaller And Is Dropping Cash Into The GE Coffers
The other day my news feed sent me this article. The points that were made are directly in line with my thesis; more cash from GE Capital ($6.5 billion in 2013, after $6.4 billion in 2012), as well as a reduced reliance on the division:
"This announcement is consistent with our goal to reduce the overall size of GE Capital and for it to return significant cash to GE," Immelt said in the statement......Ending net investment, a measure of GE Capital's size that excludes non-interest-bearing liabilities and cash, declined 22 percent to $402 billion as of March 31 from the beginning of 2009, according to the statement and GE regulatory filings....."Management has weathered the financial crisis well, improving their equity position even while shrinking the asset base and improving the quality of their portfolio," Steven Winoker, a Sanford C. Bernstein & Co. analyst.....The company, the world's largest manufacturer of jet engines, will obtain 65 percent of its profit from its industrial units by 2015, compared with about 55 percent last year, Immelt said in December at a meeting with analysts and investors. Transportation, health care and energy, along with other manufacturing businesses, are the focus of Immelt's expansion strategy for Fairfield, Connecticut-based GE.
Today, Jeff Immelt held a web-cast, which can be reviewed right here, in which he details the majority of the company plans, including returning shareholder value.
As far as I am concerned, all roads lead to increasing shareholder value while marching towards the growth of the core business segments.
Owning shares of GE now, before all of the refocusing is done by 2015, should place investors well ahead of the rest of the pack, in terms of capital appreciation potential.
As far as dividend growth goes, I wrote this article which details why I believe a dividend increase might be in the cards sooner than later. Now that GE Capital is pouring in another $6.5 billion in cash to the parent company, even more evidence points to my thesis having merit.
The GE days of Jack Welch are over. Jeff Immelt has navigated, and weathered, a rough storm that stemmed from many of the Welch policies, and has turned this company around.
Get over whatever emotional barriers are keeping you from taking a serious look at the GE of 2013, rather than continuing to look in the rear view mirror.
Now could be the best time to take the plunge. Just my opinion.