General Electric (GE), not all that long ago, was the darling of Wall Street.
This storied company and its stock are now beginning a new chapter, but let’s start at the beginning of the story.
Perhaps no company represented the weight of American industry, and later exhibited the creeping financial sector, more than General Electric (GE), a proud company established in 1892.
From the beginning, science and finance were critical since the company was born from the combination of Thomas Edison and J.P. Morgan. General Electric electrified America, evolving into a global industrial colossus and a powerful brand. Over time it spread its tentacles across a myriad of industries and services and was at the forefront of the conglomerate trend of the 1970s. Then came “Neutron Jack” Welch.
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Born and raised in Salem, Massachusetts, bristling with Irish combativeness and charm, Welch was a force unto himself. From 1980 to 2000 he devoured companies, slashed about 100,000 jobs, attacked bureaucracy and terrified executives on the way to building a machine that churned out earnings that went from $1.5 billion in 1980 to $12.7 billion in 2000 as GE became the most valuable company in America.
Employees grumbled quietly, but shareholders were delighted as the stock soared during these two decades of growth.
A new board member sat through a pro forma meeting where board members questioned nothing. Afterwards, she asked a colleague, “What is the role of a GE board member?” The reply was, “Applause.”
Few realized or cared for that matter that GE had become more of a financial company than an industrial company. The company had acquired Kidder Peabody, but it was GE Capital, fueled by debt, that expanded at double the rate of the overall company to represent almost half of GE’s earnings by 2001, as the stock price surged.
After GE stock rocketed, it ran into the tech bubble implosion leading to General Electric’s market value plummeting by $500 billion. Since then, General Electric has let go about half of its workers. The global financial crisis of 2008-2009 dealt another crushing blow to the company, requiring it to seek financial backing from the Federal Reserve to survive.
Summing up the humiliation of the company, the company bought back $24 billion worth of stock from 2016 to 2017 only to see its stock price decline.
For even more about the GE story, get a copy of Thomas Gryta and Ted Mann’s great book, Lights Out: Pride, Delusion and the Fall of General Electric.
A New, Focused General Electric
GE is a shadow of its former self as it has turned itself upside down and is starting anew. Its stock is in an uptrend as it sheds its conglomerate image and focuses on one important but cyclical business – aerospace. This GE group makes and maintains jet engines for civilian clients like Boeing (BA) as well as for military markets.
GE has already spun off its healthcare group and in April plans to shed its renewable energy business. This is known as GE Vernova and will trade under the ticker symbol GEV. GE Aerospace will continue to use the GE stock ticker.
In 2023, GE earnings surged 264% as revenue grew 17%.
GE stock is trading at its highest level since November 2017 when it announced it was changing course due to severe financial pressure on the company and stock.
Is GE stock a buy right now?
Probably not.
The Cabot Explorer tends to group companies and stocks into two buckets. There are “Dominating” companies that are seen as leaders with strong market shares and brand names, pricing power, and a proven ability to adjust to changing market conditions. These are more buy-and-hold conservative ideas for the long haul.
Then there are what I refer to as “Disrupters.” These are newer, more aggressive companies seeking to dominate their competitive markets. In these companies, growth is higher but bumps in the road are frequent. Management is often thin but the chance for fat profits is tantalizing.
General Electric (GE), in a cyclical business with lots of competition, falls into a grey zone between the two. So, while I hope everything works well for General Electric and its stock, I would not buy here after a strong run but rather when it pulls back a bit.
Don’t miss the next issue of the Explorer with its Dominating and Disrupter stock recommendations as well as a premier list of exchange-traded funds (ETFs) to capture sector growth trends.
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