General Electric (NYSE:GE) remains one of the most dynamic major corporations in the United States. As this company changes and adapts to changing market conditions, it provides an interesting example for other companies seeking long-term viability. Under the watchful eye of CEO Jeffrey Immelt, GE has shown the ability to recover from difficult conditions that would have sunk less capable management teams. Immelt belongs to a select group of CEOs who have avoided overextending themselves in recent years.
While GE did experience some contraction in the course of the recent global recession, the company is taking proactive measures to ensure its future health. Specifically, GE is pursuing a long-term goal to divest itself of its financial services division. Recently, the public learned that GE plans to sell off 20 percent of its finance unit in 2014. Following that move, GE will simply distribute the remaining shares of GE Capital to GE stockholders. Announced by Ken Sherin, the CEO of GE Capital, the divestment could open a bright new chapter for GE.
This strategic move will enable GE to receive more of its earnings from its industrial division. In doing so, GE will limit any potential harm from future shocks in the financial industry. This dramatic last step caps a long string of risk limitation tactics at GE. Conservative yet forward-thinking, this strategy reflects Jeffrey Immelt's commitment to corporate stability. The company has already removed itself from real estate and home loans to refocus itself on stabler, more traditional activities.
In 2008, GE's net investment totaled $556 billion. Though well in line with then-current Wall Street trends, this level of exposure is no longer deemed wise in knowing financial circles. Reflecting its renewed commitment to core industrial activities, GE estimates that its net investment balance will drop to $300 billion after the company spins off its consumer lending operation. The investing public has responded warmly to GE's ongoing reorganization efforts. Immediately after the announcement regarding GE's upcoming IPO, GE's stock price rose nearly one percent. Overall, GE shares have risen nearly 30 percent this year, which far outmatches the S&P 500's 26 percent advance in 2013.
Like any other major transition, GE's impending IPO will take time and preparation. According to GE, the process will be complete in 2014. Though GE hasn't yet released a valuation for the new finance company, many analysts expect the new company to be quite large and competitive. The new company will compete directly with companies like American Express (NYSE:AXP) and Capital One (NYSE:COF).
Although GE is an older company, the firm isn't showing any lack of leadership or fresh ideas. Unlike other industrial giants that have lost the ability to adapt and change, General Electric has proven its resilience and institutional strength. Under CEO Jeffrey Immelt, GE is apparently headed towards a long and fruitful future. Although the company has experienced struggles and trials from time to time, it seems to have the right management to deal with catastrophic situations.
This is a good time for General Electric to regroup and assess the tactics that have kept the company competitive for quite some time. Occasionally, firms that achieve success lose momentum and experience internal squabbles. In all likelihood, GE will avoid these pitfalls through determined corrective actions. Although GE stock might experience temporary ups and downs, the overall future of the stock looks fairly positive.
Overall, GE is a good investment for people who prefer placing their hopes on companies with well-established histories. Despite its conservative tendencies, GE is willing to take thoughtful risks to fortify its fortuitous stock market position. If more companies would follow the GE example, Wall Street wouldn't have developed its current leadership deficit. In the years to come, GE should continue to provide a good example of consistent corporate management. Though nothing is ever certain in the business world, GE's recent ascent bears all the hallmarks of becoming a long-term trend.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.