Many of you who have been following me will realize that I’m not the biggest fan of General Electric Company (NYSE:GE). This has absolutely nothing to do with GE as a company, or GE stock as a strategic investment. InvestorPlace contributor Aaron Levitt late last year presented an excellent presentation of why you should buy General Electric. It’s so much more than just its legacy business of home goods and appliances.
When you think about it, GE stock is one of the most diverse investments you can make. It’s part manufacturer, part oil giant and essentially, a full-time technology firm.
You’ve seen their commercials — General Electric has undergone a fresh, relevant renovation. And of course to the value folks, who can overlook the dividends? As Levitt points out, “GE recently upped its payout and has now increased its dividend 2,300% since cutting it during the recession.”
This is beautiful and so utterly boring. Don’t get me wrong — boring is good, depending upon your objective. If I’m sitting on a billion dollar trust fund and I absolutely had to pick a publicly traded security, I’d go with GE stock.
Rough Start for General Electric Stock
At the same time, there is an exciting way to do boring. I’d argue that AT&T Inc. (NYSE:T) is a prime example with its Taylor Swift partnership. And let’s face it — Walt Disney Co (NYSE:DIS) was a snoozer prior to their Star Wars acquisition.
I love the exposure to industrial technologies that GE stock provides. However, that’s a category that takes a major leap backwards compared to sex appeal and light sabers.
The problem now is that Wall Street is taking notice. For a supposedly stable investment, GE stock isn’t getting off to the best start. Year-to-date, General Electric shares are down roughly 4%. Clearly, the Donald Trump effect has faded. At its peak, GE stock gained nearly 10% from the surprise election result. Now, shares are up less than 2%. Like I said, it’s incredibly boring.
The optics are terrible too. As we all know, the Dow Jones Industrial Average is above 20,000 points. Logically speaking, that means a majority of the Dow 30 companies are doing well. In fact, data from CNN Money reveals that 21 of the 30 are in the black YTD. That’s a cool 70% even. Yet disturbingly, the vaunted GE stock is a dud this year. Only Verizon Communications Inc. (NYSE:VZ) and Exxon Mobil Corporation (NYSE:XOM) are worse.
The issue of course is that GE stock is the worst of two worlds. It’s not holding pace under supposedly favorable circumstances. Also, at 28 out of 30, General Electric is not protecting shareholders from volatility. Should investors be worried?
General Electric Is Still Boring — and That’s Good!
I’m going to go out on a limb and disagree with some of my colleagues. InvestorPlace contributor Lawrence Meyers may be the most vocal critic of GE stock. He wrote, “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.”
Those are harsh words, and not entirely unfair. Admittedly, the slow start for General Electric is indeed worrisome. Between 1962 and 2016, there have been 27 Januarys that fell into negative territory. Of that figure, 15 have led to years where annual returns also touched red. Thus, there is an increased probability that early volatility will lead to more of the same. Subsequently, this year’s January dropped below 6%.
Click to Enlarge
But let’s consider another fact. The average negative annual performance since 2000 is a loss of 16.6%; however, when you take out extraordinary years like 2002 — the aftermath of 9/11 — or 2008 — the global financial crisis — the average loss is a more palatable 4.7%. But how does this information help investors of GE stock?
Annual returns measure performance from the absolute beginning of the year to the end of the year. So if General Electric is already below the average “volatility rate” — discounting extraordinary years — there’s a good chance a contrarian play will work.
I’m not suggesting you can get rich with GE stock because you won’t. But despite its rocky beginnings, don’t you worry. General Electric is still the same boring company you’ve grown to depend upon.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
