General Electric Stock Is on a Long, Slow Road to Redemption

Just hold your nose and buy GE stock while it's still historically cheap

General Electric (NYSE:GE) stock is the type of investment that you might see Warren Buffett or your grandfather make: a trusted brand, known as a “safety stock” and an American icon. However, the company fell upon hard times during the Jeff Immelt era, and so did the GE stock price.

GE Stock Is on the Long, Slow Road to Redemption
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Today, owners of General Electric stock are hoping that current CEO Larry Culp can turn things around. The billion-dollar question, however, remains: is there reason to believe that GE stock is worth buying now, or that current shareholders should add to their positions at such a historically-low price?

Buy GE Stock as Fraud Allegation Fades

As you may recall, Bernard Madoff whistle-blower Harry Markopolos single-handedly caused the GE stock price to drop by 11% on Aug. 15 when he published the website gefraud.com, which was supposed to be a devastating exposé on General Electric’s alleged accounting fraud. Not to toot my own horn, but I was telling everyone within earshot that “this, too, shall pass” and to buy General Electric stock with both hands.

That’s precisely what Larry Culp did; ignoring the FUD (Fear, Uncertainty, and Doubt), Culp purchased GE stock shares near the exact bottom in the midst of the gefraud.com scare.

The GE stock price has recovered somewhat since that time — and to provide even further vindication for GE and for Culp’s stock purchase, I just checked the gefraud.com website and it’s apparently out of commission. It only displays a “403 Forbidden” error; this may be resolved soon, for all I know, but it’s a sign that Harry Markopolos’ attempt to relive his Madoff-era glory days may have come to an unceremonious end.

The Recovery of an American Institution

I don’t want anyone to get the impression that General Electric’s problems are entirely in the past; after all, the U.S. Securities and Exchange Commission is still looking into GE’s accounting practices, and no one can predict the outcome of that probe. If the government can’t prove any malfeasance or is willing to accept a moderate cash settlement, however, then there could be a sizable relief rally in the General Electric stock price.

Let’s also not forget that GE’s most recent earnings report was highly encouraging, with Larry Culp waxing optimistic about the company’s impressive three-month performance:

We made steady progress on our strategic priorities in the second quarter. Our top-line growth was solid, and Power made meaningful improvements on fixed cost reduction and project execution.

In terms of the numbers, GE exceeded analysts’ expectations for the quarter: the consensus projections were that earnings would come in at 12 cents per share and revenues at $28.68 billion, while the actual results indicated earnings of 18 cents per share (a decisive beat) and revenues at $28.83 billion (in line with expectations).

Reclaiming Its Legacy

And so, is it possible for an old-school company like General Electric to stage a comeback in a thoroughly modern economy? As explained, by Mark Miller and Lucas Conley in a podcast recording hosted by the University of Pennsylvania, General Electric’s path forward should be guided by a respect for its past combined with an eye towards the future:

To stay perpetually relevant, longstanding brands like GE need to find new ways to use the past as a bridge to the future, making legacy every day… [B]rands like GE must do more than bring good things to life at the end of each quarter. To build modern legacies, they must find ways to keep those good things alive and thriving for years to come.

I concur wholeheartedly with Miller and Conley’s road map to General Electric’s future success and longevity. Like it or not, GE is going to have to cater to the consumer preferences and demands of modern millennial and Generation Z shoppers, while at the same time maintaining its identity as a company that’s as old as the Dow Jones and as American as apple pie.

The Takeaway on General Electric Stock

It’s a tall order, I’ll admit, for General Electric to regain its status as a giant of American industry; it’s an even taller order to ask investors to hold on through GE stock’s most challenging years.

It’s a wager that I believe will pay off, however, as an old company discovers new ways to shake off the FUD and embark on the next chapter of its rich, legendary history.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/09/general-electric-stock-is-on-a-long-slow-road-to-redemption/.

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