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GE’s ‘Quarterback’ Has Great Field Vision

Bargain shares, healthy yield could sweeten post-crisis comeback

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Dow LeaderboardAs a former right tackle for the Dartmouth football team, General Electric (NYSE:GE) CEO Jeff Immelt knows what it means to be on third down and long with the game on the line — and the difference between playing to win and playing not to lose.

Although the company’s share price was sacked during the financial crisis and Great Recession, Immelt is counting on a big comeback for GE in 2012, driven by a new focus on “insourcing” and strong growth in emerging markets.

It has been more than a decade since Immelt beat out rivals Jim McNerney and Alan Mulally for the right to succeed the iconic and mercurial Jack Welch, who earned the nickname “Neutron Jack” for his ability to eliminate 100,000 employees while leaving buildings standing. Today, those rivals lead powerhouse teams of their own: Mulally wrote the playbook for Ford’s (NYSE:F) drive back to profitability and McNerney is soaring through turbulence at Boeing (NYSE:BA).

Immelt’s tenure at the helm of the global diversified giant has been mixed. Since Welch’s handpicked successor took over in 2001, GE stock has slipped 36% — the Dow rose 30% during that same time frame. During Welch’s 20-year reign, GE shares vaulted nearly 3,100% and the company’s growth rate approached 20%. That’s a pretty tough act for anyone to follow — even an insider whose first job after earning his Harvard MBA in 1982 was as an internal consultant for GE.

To be fair, Immelt has had some tough breaks. He stepped into the CEO job just days before 9/11, a tragedy that hammered several of the company’s core businesses (most notably aviation). The Enron scandal followed three months later.

“This was not a great year to be a rookie CEO,” Immelt wrote in his 2002 letter to shareholders.

Tougher years would follow. GE, which had sunk more than $85 billion into hundreds of real estate, sub-prime lending and finance deals, saw those markets collapse. The global recession and financial crisis mugged GE Capital, sending the company’s stock down 56% in 2008. By March 2009, GE stock slipped below $7 a share — its lowest price in 15 years — and the company cut its dividend for the first time since 1938.

“Let’s face it: our company’s reputation was tarnished because we weren’t the ‘safe and desirable’ growth company that is our aspiration,” Immelt said in his 2008 letter to shareholders. “I accept responsibility for this. But I think this environment presents an opportunity of a lifetime. We get the chance to reset the core of GE and focus on what we do best.”

Focusing on what GE does best has dominated Immelt’s agenda during the past couple years. Key moves include selling controlling interest of NBC Universal to joint venture partner Comcast (NASDAQ:CMCSA) 14 months ago for $6.5 billion in cash. It also sold off all $2 billion of GE Capital’s Mexican mortgage assets to Spain’s Grupo Santander. The company invested heavily in the oil and gas services sector with acquisitions of Dresser Industries, British Wellstream Holding and John Wood Group.

Immelt has prioritized improving GE’s manufacturing operations — particularly the company’s energy, transportation and research & development units — a task that spans leading-edge technologies in medical and alternative energy niches, such as wind and solar. He also recognizes the vital importance of global markets: 60% of the company’s revenue is now generated outside the U.S.

And just in case Immelt had too much time on his hands after those multiple full-time jobs, President Barack Obama last fall tapped the Republican to be his “jobs czar,” tasked with finding ways to motivate corporations to create more jobs in the U.S. And Immelt’s answer for GE just might be the answer for corporate America as a whole.

In the March issue of the Harvard Business Review, Immelt writes that while labor costs led many U.S. companies to outsource manufacturing, a new “broader set of metrics” has led GE to reverse course and invest in U.S. manufacturing operations.

“At a time when speed to market is everything, separating design and development from manufacturing didn’t make sense,” he writes. “Around 2008, we came to the conclusion that outsourcing was quickly becoming mostly outdated as a business model …”

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