General Electric was once known as the company that brings good things to life–but so far this century, holding shares of the conglomerate has been a portfolio killer.
That all may soon change, according to Barron’s senior writer Al Root.
His take: General Electric ‘s (ticker: GE) plans to split into three companies–with one division focused on aviation, one on healthcare, and one on energy–represent a buying opportunity for investors.
That assertion goes against conventional thinking: Breakups are tough to execute–and while companies may be worth more when they’ve split up, investors are often skittish about parking their money in stocks that are undergoing rapid changes.
But GE may be worth it in the long-term. Root recently performed sum-of-the-parts analysis, putting GE’s market cap at $140 billion–30% higher than the company’s recent trading levels. Waiting for the breakups to be finished in two years may cause some frustration, but investors won’t be biding their time: GE chief executive Larry Culp will continue to improve the existing businesses.
In a recent post on LinkedIn, Culp reiterated his plans to strengthen GE amid the looming changes. “Our continued deleveraging and scaling of lean company-wide will further solidify our financial position and allow GE to play more offense through organic and inorganic growth opportunities,” Culp wrote.
While the breakups make financial sense, some are saddened to see the dismantling of an iconic American company. GE is 130 years old and was one of the first members of the Dow Jones Industrial Average. At its height, GE’s businesses touched everything including media, tech, manufacturing, and finance.
“We know GE looms large and that casts a long shadow,” Culp told Root in a recent interview. “Because memories are long, the backward look is not uncommon. But I think, increasingly, it’s going to be a dated lens. That’ll be a good thing for everybody involved with the company.”
GE shares are up 4.8% so far this year, recently changing hands at about $99 apiece and outperforming the 3% drop in the S&P 500.
For more on why General Electric is worth a look, check out the video above. Don’t forget to subscribe to my YouTube channel, where I’ll continue to take a look at Barron’s stock picks.
Write to Carleton English at firstname.lastname@example.org