Among mega-cap stocks, General Electric (GE) is about as stodgy as it gets. At Friday’s $25.14, the shares are near four-year lows and off from a high of $33 last December. The stock perked up temporarily in June on news that John Flannery, formerly president of GE Healthcare, would become CEO and chairman of the parent. He replaces the long-serving, if not long-suffering, Jeff Immelt, who remains chairman through year end.
Excitement over the change didn’t last, and the stock resumed sliding after GE said in July that earnings per share would be at the low end of its $1.60-to-$1.70 guidance for 2017, says Darren Pollock, Chief Investment Officer of Cheviot Value Management.
Same old GE, the Street concluded, says Pollock. The growth-challenged conglomerate has “routinely overpromised and underdelivered.” Investors are impatient, but won’t get Flannery’s plans until they are unveiled in November. Nevertheless, Pollock has bought GE shares for Cheviot, and, for the first time in many years, he sees some nice upside, perhaps to the mid-$30s over the next two to three years.
The new, 55-year-old CEO, a GE lifer, improved results at the health-care unit and was instrumental in the acquisition of the energy assets of France’s Alstom—a widely panned deal—which has delivered synergies faster than expected, surprising investors. There’s plenty of room for improvement at other divisions, as margins in most GE units are lower than their competitors’, Pollock notes.
With a 2017 price/earnings ratio of 16.1, the shares trade below the market multiple of 18.8. “There’s a turnaround in the offing, and you get paid an almost 4% dividend yield as this unfolds,” says Pollock. Meanwhile, he points out, insiders are buying the stock, too. And activist investor Nelson Peltz, whose Trian Fund Management owns almost a 1% stake, will “be looking over the new CEO’s shoulder,” says the money manager.
At this point, GE’s stock seems washed out, and expectations are so low that investors would probably welcome any significant changes to a company whose revenue has been flat for years. It won’t take much of a pleasant surprise to get the stock going higher again. For a patient income investor, this “dog of the Dow” is worth a look.