Q: I used to work for General Electric and participated in the company’s stock-purchase program. For decades, the stock’s price usually rose by leaps and bounds and then split, but last year again it went from blue chip to buffalo chip as it has for much of the last 20 years. What’s gone wrong with one of the greatest companies of all time, and what are the prospects? Do you think the stock ever will split again?
E.G., of Belleville
A: “G.E.: We bring good things to life,” General Electric bragged in its advertising for nearly 25 years, and, for most of the company’s 125-year history (it was founded April 15, 1892), that pretty much described the company’s stock, too.
Already in 1926, investors were given a 4-for-1 split, a bonus the company duplicated just four years later. Then, after the Depression and war, the company seemed unstoppable with seven more splits from 1954 until May 5, 2000, when the stock hit nearly $160 a share and split 3-for-1. In other words, if your great-grandparents had bought a single share of stock in, say, 1913, you would have an astonishing 4,608 shares today. It was like the Amazon of its time, and today it remains one of the country’s most widely held stocks.
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But as you have seen, since the turn of the century the company’s stock, while making several attempts to shine again, continues to flame out. The financial crisis of 2008 was particularly brutal as investors saw shares plummet 80 percent from $41.40 in September 2007 to $8.51 in February 2009. Last year again proved nasty as the year opened at $31.61 only to close at $17.45, a drop of 45 percent to make it the worst performing stock in the Dow Jones Industrial Average.
While the DJIA was rising 25 percent overall, G.E. was in the midst of a disaster. The company missed earning targets, aggressively slashed its 2018 guidance numbers and whacked its dividend in half, leading to an even bigger stock selloff from those who buy for dividend income. As a result, analysts continued to downgrade the stock and Moody’s Investment Service eventually cut its credit rating. By August, Jeff Immelt was out as the company’s CEO in favor of John Flannery, the former head of GE Healthcare.
As Dan Caplinger, of Motley Fool, noted, the first decade of the 21st century was particularly unkind to GE because of its change in corporate strategy.
“Even during the boom times of the mid-2000s, GE didn’t fully participate — in part because of its high dividend yield and in part because of its transformation into a company that relied more heavily on finance,” he wrote early last year. “GE’s financial arm cost it dearly during the recession of 2008. Many saw GE as a has-been of American industry.
Some experts say whipsawing energy prices have at times also hurt GE, whose power division is estimated to supply over 30 percent of the world’s energy. But Flannery, whose sharp dividend cut saved the company an estimated $4 billion a year, apparently has a long-term plan to right the ship by simplifying the company, selling off poor-performing assets and concentrating on its chief strengths of aviation, healthcare and power. As he says, however, this could take years.
“I’m not trying to run the company for the reaction on Monday or Tuesday or Wednesday of this week,” he said after taking over. “We have a long-term plan. We have a lot of work to do. We’re reinventing ourselves many, many, many times.”
Can he do it? Stock analysts are all over the map. The current list of recommendations sees five strong buys, one buy, four holds and three sells. Many see another dividend adjustment and a share buyback program in the offing.
“I’m holding, and I have hopes and belief that they’re going to turn it around,” Motley Fool energy analyst Taylor Muckerman said two weeks ago. “(I) might even, who knows, write some puts or buy some more.”
“I bought more and lowered my price point, too,” said Sarah Priestley, host of “Industry Focus: Energy” for Motley Fool. “I think Flannery has exactly the right idea.”
Does this mean another stock split is in the future? Perhaps, but probably not anytime soon.
“Given the tough times the company suffered, General Electric will have to keep working hard in order to give its shareholders the long-term returns they’ve come to expect,” Caplinger said.
(Disclaimer: I do not own GE stock, nor do I profess to be a stock expert.)
What role did Mazda play in GE’s earliest incandescent light bulbs?
Answer to Wednesday’s trivia: It’s now often called the Yellow Rose of Texas, but it is thought to have first bloomed in 1824 at the suburban villa of George Folliott Harison, an attorney who lived just south of what is now the New York City General Post Office. It is probably a hybrid of Rosa foetida and Rosa pimpinellifolia that became known as Harison’s Yellow and marketed in 1830 by Harison’s nurseryman, William Prince. It is sometimes called the Oregon Trail Rose as well.