Anyone still holding General Electric (NYSE:GE) stock after its dramatic drop at the beginning of 2000 must surely be among the most optimistic of the buy-and-hold brigade. Since those heady days at the start of the new millennium, GE shares have fallen from a value of 600 billion USD to a current low of 100 billion USD. Just how low can GE go?
500 billion dollars is a significant chunk of change in anyone’s book. Looking at it in relative terms, that’s the combined value of Boeing (NYSE:BA), 3M (NYSE:MMM), and Honeywell (NYSE:HON), or the entire GDP of Belgium. Towards the end of the tenure of legendary CEO Jack Welch, the company was hit by the fallout of the 9/11 terrorist attack, which badly hurt GE’s jet aviation and insurance divisions. The company lurched, losing about half of its market value of 600 billion USD, but slowly recovered from 2002 back to a level of 400 billion USD. But, then came 2008, and the global fall in stock market prices following the US Sub-Prime rate crisis. At the start of 2008, GE appointed Jeffrey Immelt to fill Jack Welch’s shoes, but he slammed right into a wall, which saw company shares falling dramatically to around 7 USD per share in March 2009. Again, they slowly recovered, in line with an overall market advance, until the appointment of yet a new CEO, John Flannery who has overseen the latest market fall. Shares are now trading at a level of 12-13 USD.
The current slump in GE’s fortunes follows cash-flow issues and weak sales of its power products. 2018 has seen the stock tumble by another 35 percent. Continued stock weakness saw the Dow Jones Industrial Average kick GE out of its elite club, which further hurt its market position. The closure of two US power plants due to what was termed an “oxidation issue” inside its gas turbine engine products also did nothing to help the company’s economic standing. While this issue was reportedly resolved, it still left behind a bad smell.
To the upside, GE has been reducing its dead weight by offloading certain loss-making elements of its traditional business, including its Edison light-bulb operations. Additionally, having cut shareholder dividends, current CEO, John Flannery is taking no prisoners as he tries to streamline the company. He is focusing on profitable business areas including aviation, renewable energy, and the company’s core business area of power generation. Flannery has also trimmed away areas of potential future liability such as the company’s involvement in financial operations, which pulled the company’s profits down in 2008.
Unfortunately, the moves taken by the current management have not seen a recovery in the stock’s value anywhere close to its historical high of almost 60 USD in 2000. The company’s name, along with others such as Toshiba and 3M, has become synonymous with a stock to short whenever bad news hits the stock market overall. However, to quote another market legend, Warren Buffet, “When everyone’s selling, you should be yelling”. So, in light of the overall stock market’s recovery, and GE’s current stability, perhaps this is a stock to keep on the back burner.