I believe it is not too early to announce my overall stock selection for 2013. General Electric (GE) has underperformed for what seems like forever since Jack Welch left and Jeff Immelt took the reins. To be quite candid, Immelt has been one of the most disliked CEOs in the US and I believe there are 3 central reasons:
- He could not fill the wildly popular Jack Welch's shoes in the eyes of employees and investors alike.
- His well known political leanings went against the grain of MOST of corporate America.
- His cutting of the vaunted GE dividend after he promised that the dividend would not be cut was perhaps his most egregious decision.
In any career of a CEO there are only a few defining moments, and Immelt has had more than his share of the negative kind. Jack Welch was loved by everyone - employees, the media, investors, analysts, and virtually all of Wall Street. He presided over a period that saw GE's share price and dividends reach record levels. Times were good, and he wore that like a perfectly fitting suit.
Unfortunately, the good times came to an end just when Immelt was getting going. Who is to say what his resume would look like if 2008 and 2009 never happened. We will never know.
As a result, Immelt has presided over the worst recession since the great depression, and has had to navigate the issues on a global level. Not only here in the US. The falling dollar, the chaos in Europe, and the various signals from China and the Far East. We still do not know if there is really a slowdown there or not.
Immelt has faced the financial meltdown more than other conglomerates simply because GE Capital has been such a large player in that sector. The company has embarked on a challenging mission - reduce the size of that financial division while continuing to maintain the profitability it has enjoyed for the rest of the company.
Personally, I think Immelt has done an amazing job in this area, while continuing to focus on all other sectors of GE's business, and they are enormous.
- Home appliances
- Consumer electronics
- Oil and gas
- Renewable energy
- Software and services
- Consumer and business finance
- Rail technology and innovation
- Medical imaging equipment
- Water treatment products and technology
You tell me; Is there an area in anyone's life that GE is not a significant part of? The global footprint of GE is apparent, and it is that huge footprint that is the foundation for my selection of General Electric as the 2013 stock of the year.
Let's Take A Look Back And A Look Forward
When the bottom fell out, GE cut its dividend to well under $.10/share per quarter. The share price went below $10.00/share as revenues and earnings per share nose dived.
Since that precarious time, both the dividend and the share price has more than doubled (not bad in a 3 year period), while earnings have increased as well. Revenues are still fluctuating, but I believe that global demand has fluctuated. The fact that GE has been able to grow earnings per share in the face of sliding revenues, is testament to the complete overhaul of the GE focus.
More focus on the core businesses away from the financial sector, while maintaining the profits FROM the financial sector, has enabled GE to weather many storms. Going forward, they have now positioned themselves in the areas noted above with even more intensity.
Money has been deployed in healthcare, energy, medical equipment technology as well as the environment. The size of the financial division has been slowly diminished, and the efforts focused on the rest of the company has increased.
The areas of greatest growth potential going forward are as follows, in my opinion;
This interview features Kristi of GE Healthcare's Commercial Leadership Program (CLP). It is a 18-month program designed to develop commercial talent within the GE Healthcare business.
General Electric Co. said Friday it would split its Energy business into three standalone businesses, a move that would essentially eliminate the headquarters layer that departed Schenectady for Atlanta more than a decade ago. The largest of the three new businesses, Power and Water, will be headquartered in Schenectady.
The split is intended to speed decision-making and reduce bureaucracy, as well as cut costs. "We took out a layer," said GE spokesman Jim Healy.
- Medical Equipment
GE Healthcare plans to invest the $32.9 million in equipment, researchers and research support. Some equipment might be installed this year, with the imaging center expected to be fully functional by early 2014.
Last week, GE rolled out the cleanest and most fuel-efficient freight locomotive since it started making train engines a century ago. The engine is a prototype for a new GE Evolution Series locomotive. It meets the Environmental Protection Agency's strict, new "Tier 4″ emissions standards, which slash particulate emissions limits by a whopping 70 percent and oxides of nitrogen (NOx) emissions by 76 percent, compared to the current production engines.
Obviously, these are just a sampling of what GE has been doing, and there are new developments happening all of the time.
The dollar might continue to fluctuate, which compresses profits to an extent for GE, but the Euro issue seems to be abating (for today anyway), and that could help smooth out the currency issues GE always faces.
GE currently pays a 3.20% dividend for us to wait for bigger and better things to come, which I believe will occur in 2013. When I first suggested GE back in November 2011 the stock was selling for $14.80/share, and 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.