Is GE Ready to Return to Prime Time?

If you are looking for a stock that can double or triple in the next 1-2 years, General Electric (GE) is not for you. The once darling of the stock market has been a terrible under-performer this entire decade. Yet it has the most loyal and patient shareholders of any company that I follow.

General Electric is probably ready to give you a nice 20-25% gain over the next 12 months, not including its current 3% dividend.

Jeffrey Immelt, CEO of GE, took over the helm from the legendary Jack Welch just after 9/11/2001. Bad timing for sure, as the company had to withstand the turmoil in its business units post-9/11. That said, the ensuing 6 years have been a shareholder's nightmare. This $400 billion market capitalization stock has grown its earnings in the single-digits and its stock has been straight down since 2001.

Pressure has mounted by many different shareholder factions and Wall Street analysts, including yours truly, to possibly break-up this behemoth into different, publicly traded companies. The reasoning I have put forth is that new CEOs and new boards of directors of the break-up companies would bring new and fresh ideas and more-focused business plans. No more hiding behind the mothership.

Immelt has resisted this kind of talk at every turn. Wall Street is impatient right now with him, but has not yet commenced a full-steam ahead campaign for a break-up. The sum of the parts (depending on whose assumptions you care to use) values this company at anywhere from $50-55 per share. That's just on the break-up. Going forward, appropriate analysts covering media, banking, and other industries could do a thorough and proper job on GE's spin-outs and perhaps give some valuation lift to some of these separate entities.

For now, talk has subsided as Immelt has hit the various television business shows and preached the gospel of GE organic growth to come. He may be right, and I hope he is. For the sake of full disclosure, I have been recommending the stock for the simple reason that shareholders are finally in a win-win position. Either this company really does accelerate its organic growth and the stock rises, or it will be forced to break-up into different publicly-traded companies. Either way the shareholder wins.

Whatever happens, GE's stock has begun to lift past the $39 price tag. I will not feel good about this company until the share price begins with a 5-handle... $50 or higher.

See also: Margin Growth Should Drive GE for Years to Come - Barron's

GE 1-yr chart

Disclosure: none

Comments

[Dayanand Me...:]

Hi George,
I truly respect your experience and agree with your opinion.But I guess GE is not alone in this pricky situation, a great example is MSFT. Since the tech bubble bust the stock has not crossed lower thirties. Simlarly look at IBM, its peak of $120 in Apr-2001 is yet to be reached.

GE may not have anything common with MSFT or IBM, but they are all mega cap companies (market cap>100bn). As the whole market was overpriced in 1999-2000 so these mega cap companies would take very long time to come back to their true values.

On a lighter note , by applying laws of physics , an elephant traveling at 100mph would need to run longer to reduce its speed than a deer.

A great exception to this rule is XOM. The stock has never ever dropped in long run.
Thanks,
Dayanand
visit me @ annualreportanalysis.b...

2007 Jun 26 12:26 AM