The company hasn’t been able to return value to shareholders via dividend payments, either. These factors have kept the stock price stuck in a $10 range since the depths of the recession, moving between $5 or so, when everyone though the bank was going under, to about $15 on the high end. While there’s a lot of play in that range, it is still a far cry from the highs prior to the financial meltdown. All but the most aggressive investors should probably avoid Bank of America, too.
Unlike GE, however, both of these banks were finance companies taken down by a financial crisis. While it certainly wasn’t something anyone wanted to happen, at least they were openly engaged in activities that everyone, from professional to amateur investor, knew they were doing. GE was supposed to be an industrial giant, many felt Welch and Immelt were simply lying.
Making Amends
Immelt was well aware of the problems that he was facing, particularly the image issue. He worked quickly to rework and resell the business. It wasn’t easy, as investors rightly questioned his every move, but he had selected a course of action and was following it through. A big part of his decision was to streamline the company and get back to basics.
Under his plan, General Electric would be an industrial company again. He realigned the business around areas that he believed possessed the best long-term potential: Energy Infrastructure, Aviation, Healthcare, Transportation, Home & Business Solutions, and GE Capital. Clearly, he was looking to find GE’s strengths, pair them with market needs now and in the future, and using the ruthlessness taught to him by Welch to bring GE back.
Along the way, he trimmed off several businesses that didn’t fit. One large change was selling off a majority stake in NBC. Although the company still owns 49% of the entity, it no longer has to worry about trying to be a media company. Retaining a material stake in the business, however, allows GE to benefit from this division’s future success.
So Far So Good
While not exactly a smooth ride, the company has been doing a decent job of turning itself around. More importantly, it has starting hitting management targets and building trust. Part of that has been a rapid increase in the dividend.
GE’s renewed focus on its industrial business should serve it well, particularly in a world that is infrastructure poor. Indeed, developed nations have underinvested in infrastructure while developing nations simply don’t have enough.
On the negative side is the continued importance of GE capital, which should be a concern for all investors. However, Immelt’s time in the 2007-2009 recession purgatory left its mark. He has openly discussed the division and why he believes it is still important while at the same time working to shrink GE’s reliance on it.
With a yield above 3%, now could be a good time to get on board with this mending fallen angel.
Yours,
The article Getting Back On Track originally appeared on Fool.com and is written by Reuben Gregg Brewer.
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