Scherbaum's stock exchange: General Electric shakes off a century of dust

The younger ones won't remember, but General Electric (GE) was at times the most valuable company in the world. In the meantime, GE has hardly anything to counter the new tech stock market favorites such as Apple, Microsoft and Co. when it comes to market capitalization. The extent to which the long-established company had lost its grip on the stock exchange became apparent in the summer of 2018. At that time, the conglomerate dropped out of the Dow Jones index after 111 years of membership, in which GE was one of twelve companies that were newly introduced in 1896 Index was listed. But the fame of yesteryear is known not to be worth much on the stock market.

GE has been undergoing a painful restructuring process for years.

The 2008 financial crisis exacerbated many of the Group's difficulties, which began with Thomas Edison and the first lightbulb.

One reason for this was the very strong financial sector during the financial crisis.

In 2014, group-wide sales were just under 150 billion dollars and the group was active worldwide with more than 300,000 employees.

GE wants to emulate Siemens

In the recent past, negative factors such as the corona pandemic and a difficult domestic market in the onshore wind energy sector have been added.

Sales of shares as well as hard savings ensured that last year only just under 80 billion dollars were made, while the number of employees was last at just under 175,000.

Now the management is daring the big break and trying to emulate the German competitor Siemens a little. This had recently left GE behind not only in terms of market capitalization. Germany's largest technology group recently not only raised its profit forecast for the 2020/21 financial year (as of September 30) several times, but also exceeded expectations again when the balance sheet was recently published. Siemens was able to increase sales and profit by a double-digit percentage.

GE, in turn, would like to get back on the road to success and create three new listed companies.

GE Healthcare should focus on precision health.

The spin-off is to take place in early 2023, while GE itself wants to keep around 19.9 percent of the shares.

The merger of GE Renewable Energy, GE Power and GE Digital into one company that will lead the energy transition is planned for the beginning of 2024.

The remaining part will concentrate on aviation in the future.

Stock market takes plans well

On the stock exchange, the American plans were found to be good.

Not only because many investors have painfully followed the crash of the once proud traditional company from the United States for years and are now likely to wish for a recovery.

The climax was the aforementioned descent from the Dow Jones index. GE's share price has plummeted in recent years. Between the beginning of 2017 and the beginning of 2020, the price collapsed by over 80 percent, with a multi-year low of $ 44 being marked in May of last year, the record high of $ 450, which was marked at the beginning of this millennium.

A strong price rally started from the multi-year low. The quotations rose to 115 US dollars by March 2021, after which a sideways movement followed, which continues to this day. After all, those who placed their trust in GE a year ago have so far recorded more than 30 percent price gains. It could very well go on. The consolidation could be technically terminated if the breakout of the March top at 115 dollars succeeds. The start of a new price rally would then be quite possible, with the next major price target being set at the $ 200 mark in the medium term.

On the other hand, conglomerates always struggle on the stock exchange with the penalty of the so-called conglomerate discount.

In many cases it is assumed that the individual parts are worth more in themselves than if they were combined in a large company.

A turnaround bet

This is exactly where things could get exciting at GE with the now announced split.

That does not mean that everything will get better overnight, but the split is likely to result in a certain price imagination;

Knowing full well that such plans bring painful cuts with them, the renovation is likely to cost a lot of money, while the continued high debt has to be driven down.

In addition, the new business areas are becoming leaner and more flexible, but first of all they have to assert themselves against the competition.

At this point in time, the GE share should be classified more in the category of "exciting turnaround bets".

The analysts of Deutsche Bank Securities recently upgraded the ranking from neutral to buy and raised the price target to 131 dollars.

Long-term dividend fans will hardly have an eye on the traditional American security with a current 2022 dividend yield of less than 0.5 percent, especially since dividends have been cut again and again in the past.

The German competitor from the Dax can offer more.

Siemens’s 2022 dividend yield is currently more than 2.6 percent, and investors who joined Siemens ten years ago have doubled their investments to this day.