General Electric: Nelson Peltz Takes A Position

Out of the 12 companies that comprised the original Dow Jones Industrial Average, launched in 1896, General Electric (NYSE:GE) remains the only one still in the lineup. Founded by Thomas Edison in 1892, the 123-year-old company has proven its survival skills through superior managerial skills and innovation despite economic meltdowns. Yet, Wall Street and investors continue to be wary, although current CEO Jeffrey Immelt has a clear vision of the future and a return to the company’s manufacturing roots.

Many analysts focus on the mistakes GE has made over the last decade, such as selling NBC Universal and possibly not obtaining an appropriate sales price, overpaying for Amersham in 2004, overextending itself into ancillary businesses, overexposure in the finance sector, diluting shareholders and other missteps.

Trian Believes in GE’s Transformation

One major activist investor is bucking this trend of focusing on GE’s past. Nelson Peltz of Trian Fund Management has taken a $2.5 billion position in the company’s stock. Rather than putting pressure on management for results, he has faulted the stock market for undervaluing GE. In a white paper, Mr. Peltz stated, “Management has taken bold steps to reshape the company. We believe management must be given credit for the transformation that is now underway.”

Core Factors Persist

However, the core factors that resulted in creating and driving the industrial powerhouse remain, even as many analysts overlook GE’s strengths.

One of those strengths is its R&D in industrial operations – its enviable track record is a critical selling point when bidding on new projects. GE can provide decades of performance data on its technologies and equipment, giving it a significant edge over the competition. GE invests close to $5 billion annually into R&D to keep that competitive edge sharp.

Priced At An Attractive Value

Still, shareholders continue to wait for decent stock market performance. Since Mr. Immelt stepped into the role of CEO after Jack Welch in 2001, GE’s total shareholder return, including dividends, is zero percent. Without the benefit of dividends, the stock has declined 48 percent in contrast to significant increases across the industrial sector. In 2001, the stock hit a high of $52.99. After tanking to $14.70 in November of 2011, the shares have performed slightly better and currently trade at $28.07 (market close 10.12.2015).