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General Electric has been a symbol of American business for well over 100 years, but recent headlines don’t paint the picture of a homegrown success story. Instead, General Electric is heavily indebted and former CEO Jeff Immelt is a pariah compared to his predecessor Jack Welch. After hitting a split-adjusted all-time high in mid-2000, the stock has continually disappointed and currently trades below $10 per share.
Few companies as historically important as General Electric have suffered through a worse two decades than GE’s under Immelt’s watch. But new CEO Lawrence Culp, Jr. is trying to turn the beleaguered firm around and analysts are beginning to wonder if the worst is finally over. Does General Electric deserve to have the slate wiped clean? Not exactly, but there may be good reason for optimism.
History of GE Stock
Few companies in the public markets have been around longer than General Electric, which formed shortly after J.P. Morgan and Anthony Drexel convinced famous inventor Thomas Edison to combine his numerous business interests under one umbrella. At the time, Edison had a hand in running 4 different electricity companies: Edison Lamp Company, Edison Machine Works, Bergmann & Company and the holding firm Edison Electric Light Company.
GE’s original iteration was born in 1890 when Edison merged these 4 businesses into the Edison General Electric Company. Two years later, Edison’s new company merged with rival Thomson-Houston and became officially known as the General Electric Company.
Brief Company History
In 1896, General Electric was asked to join 12 other companies in forming a brand new type of stock market tracking system known as an index. This index would be known as the Dow Jones Industrial Average. GE joined other American industrials like American Sugar Company, American Tobacco Company, Chicago Gas Company and United States Rubber Company. Today, General Electric is the only company from the original Dow 12 to remain in business.
The first half of the 1900s was a period of innovation and expansion for General Electric. A number of breakthroughs occurred in GE labs, such as finding phenolic resins to mold plastic (1912), building the first electric dishwasher (1935), building the first jet engine (1942), developing Lexan plastic (by accident in 1953), and creating the first solid-state laser (1962). GE also expanded vastly over this time period, building divisions in finance, aviation, healthcare, energy and entertainment.
In 1981, Jack Welch took over as CEO and began molding the firm to his vision. Welch became one of the most famous CEOs in history, synonymous with American business success following his run at GE. During the 1980s, Welch worked diligently (and to his critics, cruelly) to reduce overhead and cut unprofitable divisions. Welch ran a “rank and yank” system, where he grouped his managers and fired the group in the bottom 10% every year. General Electric’s market cap increased from $12 billion to over $400 billion by the time Welch’s tenure ended in 2001.
Jeff Immelt took over after Welch and his run was anything but smooth. GE has been losing market share and revenue since the Recession. While most large-cap American companies are enjoying the longest bull run in stock market history, GE has been sinking. Its current market cap is just over $87 billion, the stock price is only $10 and the dividend yields a measly nickel. Plus, the company was removed from the Dow Jones Industrial Average after more than a century in 2018.
The last few years have not been kind to GE. The stock spent all of 2017 and 2018 in a freefall, bottoming out at an all-time split-adjusted low of $6.45 on December 12, 2018. Since that all-time low, GE has rebounded a bit. Since the calendar flipped to 2019, GE is up 38% and has renewed interest from investors.
Outlook for GE Stock: Should You Buy It?
GE has bounced back in 2019, but it remains toxic to legions of investors. Here are a few pros and cons to consider before adding General Electric to your portfolio.
Pros of Buying GE
- The stock looks cheap by some indicators: With a forward P/E of 13 and a price-to-sale ratio of 0.78, investors might be getting a veteran American conglomerate at their bottom barrel price. Value investors often buy stocks at these levels.
- Worst appears to be over: GE’s new mission is to divest parts of its massive infrastructure. After a decade of decline, revenue has increased 4 years in a row and the stock has rebounded over 40% after reaching its all-time low last December.
- Important client base: One of General Electric’s largest customers just so happens to be the United States Department of Defense. Not only does GE have a web of infrastructure built into our power grids, but it also has a direct phone line to the federal government.
Cons of Buying GE Stock
- Marred by controversy: From the failure of former CEO Jeff Immelt to numerous pollution scandals, GE’s public image has taken a hit. Repairing an image takes time and unless the price goes parabolic, investors will stay away from stocks with bad reputations.
- Overwhelming debt: Selling off non-profitable divisions can be a fine business decision, but employees who found themselves fired had to wonder about GE’s constant presence on the merger and acquisition market. GE’s debt load is tremendous; some analysts estimate the company is sitting on $185 billion in debt and liabilities.
- Trend of decline will be hard to break: Know the expression, “Never catch a falling knife?” GE was the ultimate falling knife and testing this rebound is nerve-wracking. The company is spread so thin across countless divisions that it’s impossible to know what its main goals are. General Electric needs to prove itself in the boardroom first before you can trust the stock chart.
Steps to Buy General Electric Stock
If you’ve weighed the pros and cons of buying shares in General Electric and still want to take the plunge, here are the steps to take. When a stock has been punished the way GE has, it’s important to take each step slowly and confirm your plan. A lot of smart investors have lost money trying to call a bottom on GE’s stock.
- Plan Your Investment Goals
Every investment needs a goal. Once you narrow your focus and set goals, you’ll be able to take some of the emotion out of investing. When buying a stock like GE, define your goals before you even think about putting capital to work. How long do you want to hold the stock? How much pain can you endure if it turns down again? How much upside are you trying to capture? An investment goal should involve an exit strategy for both the downside and upside and a timeframe for long you can hold the stock if it moves sideways.
- Determine How Much Capital to Risk
After formulating some investment goals, figure out how much capital you’re willing to tie up in a GE investment. Think about the opportunity costs of using that capital on GE — that’s less money you’ll have for investment in say, Amazon stock, or Tesla puts. You should never put too much money into a single stock and that’s infinitely truer with a potential wealth-buster like GE.
- Pick a Discount Brokerage for Your Trade
Okay, now we have a plan and our capital allocated. But where to buy shares? Online brokerages are your best bet for popular stocks like GE. Charles Schwab, Ally Invest, Fidelity and E*TRADE have all reduced sales commissions to $4.95 per trade.
Interactive Brokers charges a fraction of a penny per share, and then there’s the completely commission-free Webull. Volatile stocks like GE can change investors’ minds in a hurry, so we don’t want to pay through the nose to get out of the trade.
- Find an Entry Point
Once you’ve chosen a broker and funded your account, it’s time to plan your trade. But don’t just rush in and buy shares. Wait for a proper entry point to maximize profits. Technical traders often look for support levels to make buys and price points where the stock seems to always find buyers. Using support levels, try to find a good entry point for your trade. You don’t want to enter a trade at a resistance level and be underwater immediately.
- Execute Your Trade
Once you identify an entry point, it’s time to execute the trade. Enter the number of shares you want to purchase and confirm your order. Use a limit order if you want to enter the stock at a specific price only or a market order if you want to immediately buy shares at the best available price. After executing your trade, keep an eye on it with your broker’s watchlist and charting system.
Best Online Brokers
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Will General Electric Ever Return to Prosperity?
Will General Electric ever regain its status as one of the world’s premier publicly traded companies? It’s unlikely, as it’s survived far longer than any of its original Dow 12 brethren and currently faces environmental headwinds, confusing business arrangements and a mountain of debt. If you want to add GE to your portfolio, you’d better have a strong reason. Otherwise, it might be best to leave this sleeping giant alone.