Stocks for the long run: GE since 2001

Boston Magazine has an article on GE CEO Jeff Immelt. They note that the stock price has gone down from $40 per share to $29 during the 16 years that he has run the company. Adjusted for inflation, that’s nearly a 50-percent decline ($40 in 2001 is equivalent to about $55 today).

A Google Finance chart of GE versus the S&P 500 confirms the dismal performance of this stock.

What do readers think? Was GE just so crazily overvalued, even after the Crash of 2000, that the stock had nowhere to go but sideways? Revenue in 2001 was $126 billion and earnings per share were $1.41 (annual report). The 2016 annual report shows  $113 billion in “industrial segment revenues” and $1 in “continuing EPS” (GAAP measures) and $103 billion in revenue and $1.49 using non-GAAP techniques. So the company’s performance has become incomprehensible to laypeople in the intervening years, but revenue and profits do seem to have stagnated. How can this be in a world that is ever-more-friendly to the biggest companies?

[Not everyone is suffering. Boston Magazine notes that shareholders paid Immelt $21 million last year. He spent a full four months of salary on a modest dwelling: a $7.5 million Back Bay townhouse.]

Related:

  • 2003 Slate article on GE executives underperforming
  • Stocks for the Long Run, the investment classic that my money expert friend says can lead to infinite wealth. If you are in fact sure that stocks will outperform bonds over the next 10 years, for example, you can work with options and futures to pick up guaranteed risk-free cash. (This is in case you don’t want to get infinitely rich by starting a company with a 100-percent female workforce, which Hillary Clinton and Elizabeth Warren say will do the same work at much lower cost than what your stupid competitors are paying their workers who identify as male.)

12 Comments

  1. billg

    May 14, 2017 @ 1:52 pm

    1

    One insider’s view of their operations:
    – grow revenue by acquiring companies, then immediately raise prices
    – replace local employees with those from “LCCs” (‘low cost centers’, GE speak for offshoring)
    – focus on high-margin support contracts vs new product development
    – up-or-out career path for management (replace acquired 10-20yr managers with freshly graduated MBAs)
    – every 6-24 months shuffle division managers (up or out!) then rename the business division
    – improve moral with slogans like “GE jobs are good jobs”

  2. George A.

    May 14, 2017 @ 1:59 pm

    2

    @billg, were you talking about IBM? That’s IBM’s game which it has been playing it for years.

  3. SuperMike

    May 14, 2017 @ 2:14 pm

    3

    Related to the related: Someone tried the “100% female work force” thing and it totally worked: https://www.ted.com/speakers/dame_stephanie_steve_shirley Apparently, women were making working software from home in the 70’s. Of course, they passed a law that made it illegal.

  4. billg

    May 14, 2017 @ 2:21 pm

    4

    @George A: yup, its the focus on “shareholder value” straight from the 1990s Harvard Business Review. Thankfully (at least in tech) corps are shifting to “stakeholder value” which includes shareholders, employees, and customers.

  5. jack crossfire

    May 14, 2017 @ 4:18 pm

    5

    Anyone making jet engines here is doomed by regulation & lack of military funding. Jet engine development can’t be done without military funding, but that’s only available in places like North Korea & China.

  6. Andrew

    May 15, 2017 @ 6:50 am

    6

    Seems unfair to ignore the meaningful dividend yield over time in calculating return. But still a laggard.

  7. Ivan

    May 15, 2017 @ 8:10 am

    7

    Dividends do not appear to help much. GE has consistently lagged S&P during last 15 years assuming dividend re-investment.

    http://performance.morningstar.com/stock/performance-return.action?region=USA&t=ge&culture=en-US

  8. Jack

    May 15, 2017 @ 10:16 am

    8

    Jack Welch, Immelt’s predecessor, who built the modern GE, was hailed as a great, maybe the greatest, business leader of his time. In the financial crisis it was revealed that Welch’s GE was one very risky company because of its large financial services component. Immelt tried to disentangle what Welch created by selling off GE’s financial services and entertainment businesses. He sees the future and makes large investments in energy — ten years ago common wisdom had it that energy prices could only go up because of demand from China. Those investments don’t now seem particularly wise and no one now seems very worried that demand from China will drive energy prices through the roof and thereby exponentially increase demand for the various energy products and services GE now offers.

  9. dean

    May 15, 2017 @ 11:51 am

    9

    jack crossfire # 5. Of course government defense contracts are lucrative business. But successfully companies are not running themselves into the ground by trying stooge tricks on their main line of business and trying to supplant it with financial services. Check Lockheed Martin or Northrop Grumman stocks performance since 2001.

  10. G C

    May 15, 2017 @ 1:34 pm

    10

    Unfortunately for our balance of trade, manufacturing in rich countries like the US seems to be a very hard way to make money. When you combine this fact with that GE had been built into a huge, risky financial services company, which Jeff had to divest, and it’s not been an easy road for GE. Some businesses are harder than others to make profits, even if they are very large.

  11. dean

    May 15, 2017 @ 2:09 pm

    11

    GC #10,
    GE is a special case even with unfavorable.climate for US manufacturing. Just check Maytag stock performance for comparison. I observed like former GE folks were destroying businesses and costing billions to their new employers with GE SixSigma BS which is applicable to very specific narrow circumstances and harmful in most cases.

  12. dean

    May 15, 2017 @ 3:34 pm

    12

    Make it Whirlpool Corp or Roper Tech. stock comparison

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