<> From blue chip to cow chip: the steep and brutal decline of GE stock | The Daily Gazette
 

Subscriber login

News

From blue chip to cow chip: the steep and brutal decline of GE stock

From blue chip to cow chip: the steep and brutal decline of GE stock

ANALYSIS: What could you do with $200 billion?
From blue chip to cow chip: the steep and brutal decline of GE stock
Building 273 on GE's Schenectady campus shows a rotor assembly at a work station in this May 2017 photo.
Photographer: GAZETTE FILE PHOTOGRAPH

The nosedive General Electric’s stock has taken over the past two years has been severe — and chronicled from every angle.

From snarky bloggers to disgusted investors, from critics oozing schadenfreude to industry analysts worried about ripple effects, watching and commenting on GE’s stock seems almost a spectator sport.

But not without good reason.

Consider this metric: 76 percent in 730 days.

That’s the plunge in GE's stock price -- from $31.39 per share on Dec. 1, 2016, to $7.50 on Nov. 30, 2018.

Here are a few other ways of quantifying the changing fortunes of GE investors:

BILLION WITH A 'B'

GE’s market capitalization — the collective value of its stock — has shrunk by more than $200 billion in two years, from about $270 billion in late 2016 to about $65 billion today. That’s not $200 billion gone from GE’s coffers or a $200 billion hit to its corporate image. It’s $200 billion of evaporated wealth for investors great and small, from Titan-Mogul Partners LLC to Uncle Ernie in Palookaville.

To help put that $200 billion in context:

  • If paid out in U.S. one-dollar bills, $200 billion would be a pile of money that would weigh more than 220,000 tons and, if the bills were lined up end-to-end, could encircle the Earth’s equator 760 times.
  • Worldwide, 134 nations have a gross domestic product of less than $200 billion.
  • With the median U.S. household income hovering around $60,000 a year, $200 billion could support 3.33 million families for a year.
  • It could pay LeBron James’ $35 million L.A. Lakers salary for 5,714 years.
  • It could run New York state government for 438 days.
  • It could run the federal government for 16 days and 14 hours.
  • It could buy a new Apple iPhone Xr for every American age 15 to 59, give or take a few stragglers. 

THE LOST DECADE(?)

The U.S. stock market cratered and the U.S. economy went into a deep recession at the end of 2008/start of 2009. Both have climbed back in the decade since, at great profit for those who invested in stocks low and sold high.

The S&P 500 — a widely watched index of the stock of 500 large companies — rose 238 percent from Dec. 1, 2008, to Nov. 30, 2018.

GE's stock price dropped 48 percent over the same 10 years. 

So was it a lost decade for GE stock? No, and here's why:

GE was soaring for most of that time. From March 5, 2009, to July 19, 2016, GE's share price rose 394 percent. The S&P 500 climbed 217 percent during that period.

GE’s stock slide has happened entirely within the past 28 months.

Also

From July 19, 2016, to Nov. 30, 2018, GE dropped 77 percent while the S&P 500 climbed 25 percent.

(None of these percentages factor in dividends.) 

DIVIDEAD

Dividends are beloved by investors. They show up every three months in the form of a check that you can spend on home repairs or beer or health care. Alternately, you can opt for automatic reinvestment of the dividend in more stock and thus increase the value of your portfolio.

GE has paid dividends for more than a century. The recent high-water mark was 2016, when the owner of a thousand shares of GE stock got a total of $930 in dividends.

That same owner of a thousand shares will get $4 in 2019, provided the company doesn’t change the payout rate.

The dividend had steadily risen over the decades, with very few cuts. This century, it gradually climbed from 14 cents in 2000 to 31 cents in 2009. It was cut to 10 cents during the Great Recession but gradually was increased back to 24 cents in 2016. It was cut to 12 cents in 2017 and will be cut to 1 cent later this month, freeing up billions to help the troubled company right itself.

THE WELCH ERA

GE stock exploded during the 20-year tenure of its most famous leader since Thomas Edison.

A single share of GE stock could be purchased for $1.31 at the start of 1972 — the year a chemical engineer named John Francis Welch Jr. became General Electric’s youngest vice president. 

When Jack Welch retired as CEO in September 2001, that share of GE stock had become 48 shares, due to a series of splits; on the first trading day of September 2001, each share was worth $40.83. So that $1.31 investment had grown to $1,959.84, not counting dividend accruals. 

By Nov. 30, 2018, the value of that investment had fallen to $360, again not counting dividends.

DOWN DOG

The Dow Jones Industrial Average is an index of the stocks of 30 large blue chip companies that is often seen as a bellwether of the overall market and a barometer of the U.S. economy. Most experts agree it is neither, but there is nonetheless a cachet to being part of the Dow.

General Electric, for many years, was the only company left in the Dow from the original group inducted in 1896, a fact GE was proud of.

As its financial troubles deepened, GE became the laggard among the other companies in the index — the doggiest of the “Dogs of the Dow.”

On June 19, 2018, GE was removed from the Dow, replaced by Walgreens Boots Alliance, a firm best known for its drugstore chain.

Walgreen stock was up 16.6 percent through the first 11 months of 2018; GE’s stock was down 40.1 percent over the same period. 

WHAT’S NEXT

Plenty of U.S. companies’ share values have bounced back from big drops. 

Just look at Apple. 

After 20 years as a publicly traded company, Apple’s market cap was still only about $5 billion in 2001. That same year, GE’s market cap was $430 billion, the most of any company in the world at the time. In 2018, Apple became the first company to exceed $1 trillion market cap, and GE had drooped to $65 billion.

Can GE bounce back?

GE and its fans are fond of saying — and by any objective measure, they are right — that the company has a large portfolio of great products that the world not only wants but needs. And GE has a lot of smart people trying very hard to get the multinational conglomerate back on track.

Here’s the thing: Investors aren’t swallowing it.

Jack Welch’s successor as CEO, Jeff Immelt, retired in 2017 when GE’s failed strategies began to haunt it, and it started to become clear the company’s situation was much worse than GE’s infamously dense financials would suggest.

Immelt’s successor, John Flannery, announced a series of sweeping changes to turn the company around. GE sacked him after just 14 months.

Every step of the way, GE’s stock fibrillated, moving 2, 4 even 8 percent in one day, sometimes up but usually down.

Replacing Flannery as CEO was Larry Culp, by most accounts an excellent leader with a strong record who now has his shot to resuscitate the tarnished icon of American industry. 

The monumental task facing him is to not just find a strategy to rebuild the company but to make that strategy succeed.

While simultaneously cleaning up the wreckage from the past two decades. 

At a time two federal agencies are conducting and expanding unrelated investigations into GE’s past actions. 

At a cost of billions of dollars the company doesn’t have. 

Also

And in a time when borrowing money is getting more expensive, as GE’s bond rating sinks closer to junk status and the U.S. economy is long overdue for a slowdown, by historical standards.

And he must do all this so well that investors are willing to pay more to own a piece of the company, rather than accept less to be rid of it.

On Oct. 1, the day Culp officially was announced as CEO, GE’s stock jumped 7.1 percent. From Oct. 2 to Nov. 30, it dropped 38 percent.

View Comments
Hide Comments
0 premium 1 premium 2 premium 3 premium article articles remaining SUBSCRIBE TODAY
Thank you for reading. You have reached your 30-day premium content limit.
Continue to enjoy Daily Gazette premium content by becoming a subscriber or if you are a current print subscriber activate your online access.