For as long as I can remember, General Electric Company (NYSE:GE) stock was the core of all core holdings in a long-term diversified portfolio. There was no more obvious selection to own than GE stock; it paid a reliable dividend, it would never go broke and it had a fantastic long-term return.
Yet, since the market hit its wacky top back in the beginning of 2000, General Electric stock is still down about 40%, so all the major indices have long since surpassed their highs of the day.
To be fair, while many stocks were bid up to mania heights, GE stock had been also. It was trading around 55x earnings at the top.
Since then, however, General Electric as a company has just sort of plodded along. Its ten year total return is actually a loss of about 18%, while the S&P 500 has gone up 60%.
GE Stock Is Stuck in a Rut
On an annual basis, earnings since then have only grown around 1% annualized. It looks like more, though, because of all the share buybacks. Of course, GE as a company also lost the great Jack Welch as its guiding hand. That’s not to say Jeff Immelt isn’t a heck of a master, but it’s akin to trying to fill God’s shoes, or maybe Steve Jobs’.
There was also a shocking development during the financial crisis, which is that General Electric stock fell over 80% from its peak and to the consternation of many long-term investors, actually cut its dividend by almost two-thirds. That’s right. In case you didn’t know it, GE stock is not a dividend aristocrat.
There were other stumbles, which were also connected to the financial crisis. The General Electric Capital division took it on the chin.
It may be hard to believe, but despite the massive number of products and divisions under the GE umbrella, it may be possible that the company finally hit critical mass as far as just how much more it can grow. Heck, it has a $265 billion market cap. Things are also changing in the world — can you believe that General Electric has closed its appliance division? That’s right. There was a time when everyone owned a GE appliance. Next thing you know, the light bulbs will vanish.
Look at its recent results. Revenue in Q4 came in almost half a billion dollars light. Half a billion! Most companies can only dream of ever having that much revenue over the course of their lives. Revenue growth? None. Industrial division? None.
I was joking about the light bulbs, sort of. Power revenue increased 20% and renewables were up almost 30%.
Bottom Line on General Electric
When you pull back and look at GE, it’s a conglomerate, and if you visualize the word itself as being a big glob of stuff, that’s kind of how General Electric is behaving. The oil & gas division isn’t really oil and gas, so much as the kitchen sink of anything remotely related to it.
GE has been repurchasing a ton of its own stock, yet I don’t like it when companies do this when the stock is clearly overvalued, especially considering the no-to-little growth in earnings. The darn thing is like the Titanic. It may not be headed for an iceberg, but for Immelt to turn the thing around is like having to navigate the legendary ship out of a bay the size of a swimming pool.
Frankly, I would kick General Electric stock to the curb at this point. Yeah, perhaps you want a conglomerate of some kind represented in your portfolio. If that’s the case, then you go with 3M Co (NYSE:MMM). That stock is up almost 125% in the last ten years, it actually is a dividend aristocrat (58 years of divvy growth running) and it has brighter future.
Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
