During the tenure of Jack Welch, General Electric (NYSE:GE) stock blew up. We’re talking a massive increase in value. General Electric completely reinvented himself and became a giant company. It seemed that there was no lucrative business that General Electric was, in some way, connected to. General Electric was in everything from industrials to Financials. Now that Jack Welch is gone and his successor Jeffrey Immelt is from being controlled, GE stock isn’t doing too well.
You would think that General Electric stock would be fairing much better because it seems to be going through the right checklist. First, it’s buying back shares. Whenever a company buys back its shares, its stock price goes up. Second, it’s paying out higher dividends. Again, when a company pays higher dividends to shareholders, more people would buy its stock driving up the price. This isn’t happening with GE. Finally, GE has also been going through restructuring as it seeks to go back to its industrial roots. We’re talking about jet engines, heavy manufacturing and higher value industrial businesses. Its latest move in this direction is its sale of its Australian and New Zealand consumer lending business, GE capital.
Despite all these moves, it appears that GE stock is not going anywhere. In fact, GE stock is down 20% compared to the S&P 500, which has risen by 110% ever since Immelt to cover General Electric. This is of course a long timeline. We’re talking since 2001. However, from the perspective of a long-term holder of General Electric like Warren Buffet this isn’t good news. Why is this company underperforming? Well, maybe the problem here is the timeline. You have to understand that in that 14-year timeline, there are certain times where GE stock was actually worth more. Also, whenever a company is going through transitions and restructuring there will be market uncertainty, there will be downward pressure on the stock. If anything, considering how solid GE stable of companies are this might be precisely the time to get into the company. Far from firing Jeff Immelt, his initiatives might be a good indicator that investors should take a second look at this company.
