Most people view General Electric (GE) as one of the bluest of the blue chips. Started by Thomas Edison in 1876, GE certainly has a lot of history.
But in recent decades it has struggled to find its strength. When Jack Welch ran the company it was all about diversifying into growth sectors and then managing the growth (and stock price) under his much-beloved Six Sigma management style.
When Jeff Immelt took over as CEO, the landscape was changing rapidly — what worked for Jack wasn’t working for Jeff.
The financial industry collapsed, which hurt because GE Capital had become a big revenue source. The alternative energy boom that was in its early boom stage, busted, which hurt GE’s solar, wind and nuclear energy programs. The global economy tanked and few countries were looking to buy more trains and industrial equipment.
But it’s hard to completely write off a $275 billion behemoth like GE that has seen its shares of economic cataclysm in the past 139 years.
What it began to see after the collapse was a world that was much different than the one that was there when the collapse happened.
Financial assets were no longer easy money divisions. On the contrary, with new regulations and oversight, they were more difficult, especially when the financial piece was only a slice of the corporate pie.
The renewable energy market was full of players and China was churning out a lot of solar panels at prices that were tough to match. Wind was becoming a harder sell and you couldn’t scale it down to the consumer or corporate level like you could solar. And governments were now cash strapped, so big, utility scale renewables projects were scrapped.
Consumers weren’t spending. Governments weren’t spending. Companies weren’t spending.
So, GE began to retool. Over the past decade the stock is off 24%.
However, recently it’s come up with plans to increase productivity and innovation among its core groups. In a company the size of GE, a 1% improvement in productivity equates to an extra $500 million on the bottom line.
It got out of the media business. And most recently it’s decided to spin off its financial division, GE Capital. This was one of those non-core additions that grew into a driving force in GE earnings and valuation.
The problem now is, through lassitude, GE Capital has grown into what would be the seventh-largest bank in the U.S. (valued at about $500 billion) and GE isn’t going to set the financial world on fire.
Its size has become an albatross.
So it spun off its credit card division, Synchrony. It sold its various real estate holdings. And it just sold its unit that finances leveraged buyouts to the Canadian Pension Fund.
GE is getting back to its roots. And with the money it receives as it spins off all this business, it will certainly start a major share buyback program and raise its dividend.
And its current 3.3% dividend is already very attractive.
The problem is, these plans are materializing now, so there’s no telling how long it will take to get them implemented in any meaningful way. Plus, GE is a huge company, so saying you’re going to do something, then actually getting it done can be two completely different things.
GE is certainly worth watching but it’s not worth tying up even risk capital for at this point.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.