General Electric: Turnaround expert lights up GE

Posted Jul 13th 2007 2:43PM by Steven Halpern
Filed under: General Electric (GE), Newsletters

With its share price stagnant over much of the past decade, General Electric (NYSE: GE) has become "the stock that investors love to hate," says George Putnam, editor of The Turnaround Letter.

Nevertheless, the turnaround specialist has chosen the stock has his latest featured recommendation, noting, "With its great businesses, strong leadership and impeccable balance sheet, GE is bound to get back into investors' good graces before too long." Here is his review.

He explains, "GE has a long history of leadership and innovation dating back to 1896 with Thomas Edison and the invention of the light bulb. Over the years, it has diversified into a wide range of industrial businesses. Under legendary CEO Jack Welch (1981-2001) GE pushed into financial services and became a powerhouse there as well."

Today, he adds, with revenues in excess of $163 billion, GE is one of the world's largest corporations, and it has a broad stable of market-leading business ranging from power generation and jet engines to entertainment (NBC Universal) and financial services.

Putnam points out that during the late 1990's "when large-cap growth stocks were in vogue and the mystique of Jack Welch was at its zenith," GE's stock traded with a P/E ratio as high as 50. He observes, "By the time Jeffrey Immelt succeeded Welch in 2001, large-cap stocks were falling out of favor and investors were questioning GE's ability to continue to flourish in the post-Welch era."

After peaking at 60 in 2000, he notes that GE's stock has spent most of the last seven years meandering around in the 20's and 30's. And, he says, "It is currently trading at its lowest P/E and highest dividend yield in more than a decade."

The advisor states, "While Immelt has struggled to get out of the shadow of his legendary predecessor, he is proving himself to be a talented and thoughtful leader. He has divested slower-growth businesses such as plastics and insurance and increased GE's presence in faster growing areas such as healthcare and aerospace."

He continues, "Immelt has also positioned the company well to take advantage of the higher rates of growth in Asia and other emerging markets." Today, he notes, about half of GE's revenue comes from outside the U.S., and he forecasts that could grow to two-thirds within five years. Moreover, he asserts, there is likely to be strong global demand in two of the company's key sectors, power generation and aerospace.

Putnam comments, "GE not only has a great brand name, but it is a market leader in almost every business sector where it has a presence. This market dominance will allow the company to thrive in both good times and bad. Moreover, it uses its financial strength to reward shareholders as well as invest in its businesses."

Putnam concluces, "Even if that takes a little time, those who buy the stock now will be rewarded by the generous dividend while they wait. We recommend buying GE stock up to 50."

Each day, Steven Halpern's TheStockAdvisors.com features the latest investment ideas and market commentary from the financial newsletter community.

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Reader Comments (Page 1 of 1)

7-13-2007 @ 3:24PM

Al Mac said...

No mention was made of 9-11-01 which happened just 4 days after Immelt took over and had a bigger effect on the stock price than any problem inside GE.

7-14-2007 @ 5:37PM

Gayle Olson said...

I'm a little confused about the stagnant price comment. I bought GE 4 1/2 yrs ago at $25.90, that's about a 10% per year gain not including dividends. No one should have paid 50 times earnings for it in 1999. I calculate the current fair market value at $43 based upon next years projected earnings of $2.25. What kind of magic allows EPS to grow twice as fast as revenues?

7-16-2007 @ 2:07PM

j.c. said...

so its taken Putnam at least 3 yrs to recognize the obvious?? what does that say about him?? the market is not a rational entity, at least not in the short-run (upto 5 yrs.). the chicanery and down-right irrationality of those involved in the market have kept the GE price down...all the core variables of GE have stayed the same...its not like they were dumb yesterday and today all of a sudden they are smart. GE has been solid, low risk and highly predictable for a long time..its guys like putnam who feckless.

7-16-2007 @ 3:09PM