Should General Electric Be In Your Portfolio Now?

On Mar 7, Zacks Investment Research upgraded leading diversified conglomerate General Electric Company (NYSE:GE) to a Zacks Rank #3 (Hold) from a Zacks Rank #4 (Sell) primarily on the news of top management restructuring. Despite the upgrade, the stock still has enough fundamental strength to drive it upward. General Electric shares are currently trading at a forward P/E of 14.6x with long-term earnings growth expectation of 7.8%, which reflects its inherent growth prospects.

Why the Upgrade?

Jeff Immelt, the company’s existing CEO, recently announced his decision to resign within a year, handing over his responsibilities to Jeff Bornstein, the present CFO and the “obvious successor.” Despite successfully managing the affairs of the company since Sep 2001, Immelt has been criticized of keeping its operations excessively “large and bulky.” Investors are therefore looking for a new leader following Immelt’s 13-year tenure as the CEO.

After the financial crisis of 2008–2009, Immelt fortified the company’s industrial business segments by trimming its financial trading wing. This initiative, however, failed to enhance the company’s share price to even half the peak achieved at the time when his predecessor Jack Welch was at the helm.

Investors of General Electric remain primarily anxious about their returns. After 13 years under Immelt’s guidance, the stock has returned a paltry 9.4% in contrast to 5,400% accrued by Jack Welch during 1981–2001. General Electric’s shares have gained approximately 35% since Immelt had taken up his position as the CEO, while S&P added nearly 93%.

In the absence of noteworthy returns, shareholders are gradually losing their faith in the CEO who has headed the management for an extensive period. Investors feel that a modern multinational company must provide a chance to new talents at the top for encouraging fresh ideas in business and, in turn, driving the growth momentum.

Stocks to Consider

Other stocks that look promising and are worth a look now in the industry include Compass Diversified Holdings (NYSE:CODI), Danaher (NYSE:DHR), and Regal Beloit (NYSE:RBC), each carrying a Zacks Rank #2 (Buy).

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