I’ve never been a big fan of General Electric Company (NYSE:GE) stock. GE’s sheer size, its struggles over the past few years, and its exposure to oil & gas all have kept me from being interested as GE stock has slid over the past few months.
While still not quite convinced General Electric is compelling at current levels, I could support a case to try and time the bottom. GE isn’t a perfect company, by any means.
But the company certainly has some room for improvement — and with shares down 23% this year, GE stock is getting downright cheap.
Letting the Turnaround Play Out
News in June of John Flannery’s promotion to CEO gave shares a modest 3.6% bump. Investors had become frustrated with Jeffrey Immelt and were looking for a change. Immelt was even No. 1 on our list of CEOs who needed to follow former Ford Motor Company (NYSE:F) CEO Mark Fields out the door.
Since the CEO change annoucement, GE stock has fallen 13%, dragging the shares to a 22-month low. To be fair, Flannery — in the role since Aug. 1 — hasn’t had time to put his imprint on the business. That should change going forward.
The new CEO has talked up broader, company-wide goals, including increasing focus on digitization and getting GE as a whole ready for the Internet of Things and broader penetration of analytics. Flannery also is reviewing the company from top to bottom, with detailed plans expected by November.
So far, investors have taken a “sell first, ask questions later” attitude toward the turnaround. But Flannery deserves some time. Fresh eyes are no doubt what General Electric needs, and the company reportedly is in discussions with ABB Ltd (ADR) (NYSE:ABB) about divesting its industrial solutions business. There will be more opportunities to make similar moves and investors might want to give Flannery some time to plan a strategy.
GE Isn’t As Dead As You Think
There’s also the question of whether the narrative surrounding General Electric, and GE stock, necessarily matches up with the facts on the ground. GE bears argue that the company is lagging across the board, lacking the focus and execution of better-performing peers like Honeywell International Inc. (NYSE:HON).
There is some truth to that. But it’s not as if General Electric is simply a collection of low-growth, technologically challenged, second-rate businesses.
The company still hasn’t figured out how to monetize its investments in digital — but that may come. A recent deal with Home Depot Inc (NYSE:HD) to develop rooftop solar farms along with Tesla Inc (NASDAQ:TSLA) shows the heft General Electric still carries — and the technological capability it still has.
The concerns in oil & gas are real, as seen in the similar slide at Baker Hughes, a GE Company Class A (NYSE:BHGE). But investors writing off General Electric for good are ignoring some of the potential positives, and some of the competitive edges, the company still has elsewhere.
Dividend Nearing A 4% Yield
A high dividend yield isn’t a reason to buy a stock. And in the case of GE stock, the dividend yield is increasing only because the stock price is falling.
But in a low-interest-rate environment, a 4% yield has proven to be a floor for a number of large-cap stocks. And that includes GE stock, which neared similar levels in 2011 and 2015 before rebounding.
Obviously, this is a bit more of a technical argument but history suggests GE stock might be set for a bounce of some kind. And the near-4% yield itself provides a bit of a “get paid to wait” case for waiting for Flannery’s initiatives to play out.
Bottomline on GE Stock
At $24, then, GE stock might be worth a flyer. It’s not a perfect company or a perfect stock. But price matters. At $24, the price here does look attractive. There’s reason to believe that the current price should hold, based on the yield and the fact that ~$24 provided support in past years. A 14x forward P/E multiple doesn’t require much growth. And a 3.9% dividend yield provides income.
From a long-term standpoint, General Electric may never again be what it was. But at $24, it may not have to be.
As of this writing, Vince Martin has no positions in any of the aforementioned securities.
