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GE’s ‘Quarterback’ Has Great Field Vision

Bargain shares, healthy yield could sweeten post-crisis comeback

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Immelt is a firm believer in the mantra that innovation is essential to gaining a competitive edge. And innovation has three key elements:

  1. Building in-house innovation capability by hiring new employees with advanced skill sets.
  2. Employing lean manufacturing practices by enabling collaboration among designers, engineers, and assembly-line workers.
  3. Crafting a new labor relations model that works hard to find common ground with unions.

But Immelt also has an eagle eye on the opportunities for GE outside the U.S., particularly in emerging markets. GE expects sales will rise 20% to 25% this year in countries with abundant natural resources like Australia and New Zealand. Infrastructure spending in the African nations of Southern Sudan, Libya and Ethiopia alone is expected to reach a combined $140 billion by 2015, according to an investors’ presentation in Rio de Janeiro that GE leaders made Wednesday. The company is setting its sights on those opportunities.

The stock is starting to rebound, too, but at around $18.75, it’s still a bargain. With a market cap of nearly $200 billion, GE has a price-to-earnings growth ratio of 0.9, indicating the stock is slightly undervalued. It has a current dividend yield of 3.4% and is trading 34% above its 52-week low last December.

Bottom Line

Immelt plans to earn his pay this year, as GE seeks to boost its innovation and manufacturing edge through insourcing and a growing commitment to emerging markets. And if the competitive fire kindled by throwing blocks for Big Green’s quarterback isn’t enough to help him lead GE into a brighter tomorrow, memories of mentor and predecessor Jack Welch standing nearby with a blowtorch likely is.

Immelt tells a story of moving from GE Appliances to GE Plastics in 1992, where he succeeded in convincing automakers that they needed to use more plastic parts. Unfortunately, he misjudged the impact of inflation and didn’t raise prices on those parts fast enough — triggering a $50 million earnings miss in 1994.

“Neutron Jack” ran Immelt to ground at a company function and reassured him that he still believed in him, even after such a big mistake.

“You’re going to get this right,” Welch said in his inimitable way. “If you don’t, you’re going to have to go.”

That’s just as true for Immelt now as it was then. All things considered, Immelt has a good grasp of where GE is in the game, where it needs to go and what it needs to do to get there. The stock is a good buy now, although it could possibly flutter as low as $17.50 before its next earnings report April 20.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned stocks.


Article printed from InvestorPlace Media, http://investorplace.com/2012/03/general-electric-ge-ceo-jeff-immelt-field-vision/.

©2014 InvestorPlace Media, LLC

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