Will GE Bring Good Things to Investors?

03/30/2010 1:00 pm EST


Elizabeth Harrow

Director of Digital Content, Schaeffer's Investment Research, Inc.

Elizabeth Harrow of Schaeffer’s Investment Research says the giant conglomerate needs to prove it has moved out of the rut it’s been in under CEO Jeff Immelt.

In this negatively skewed MarketWatch article (GE Has Been an Investor Disaster under Jeff Immelt March 12th), [columnist Brett Arends] highlights the shortcomings of General Electric (NYSE: GE) by comparing chief executive officer Jeff Immelt with widely respected Berkshire Hathaway (NYSE: BRK-B) boss Warren Buffett.

The article observes that shareholders "have lost tens of billions of dollars" since Immelt took the reins, even though the CEO has snagged "around $90 million in salary, cash and pension benefits" during the same time. Conversely, the bulk of Buffett's net worth is tied up in his own stock.

As [Arends] observes, Immelt's personal fortunes aren't directly tied to GE's stock performance, since the CEO has purchased relatively little GE stock with his own capital. So, whether investors win or lose, Immelt's personal bottom line continues to benefit.

While the author adds that external factors have also influenced GE's share price during the past decade, the overall US equities market has gained about 10% since Immelt took the top spot at GE, while shares of the blue-chip conglomerate have lost 40% of their value.

On the charts, shares of GE have been treading water in the mid-teens for quite some time now, with the equity exploring the same stamping ground it inhabited during 1996 and 1997—well before Immelt assumed his current role as CEO.

However, GE is making a noble attempt to shed its laggard status. The stock has added nearly 20% in 2010, compared to a gain of just 4.5% for the broader Dow Jones Industrial Average (DJIA).

However, the general lack of skepticism on GE is of concern from a contrarian standpoint. The stock [recently] attracted massive call buying on the International Securities Exchange (ISE), with nearly five times more calls than puts bought to open. Plus, short interest accounts for a nearly negligible 0.6% of the security's float.

While the technical outlook for GE is improving, the stock won't truly be out of the woods until it topples intermediate-term resistance at $17. (It recently broke through that resistance and closed above $18 Monday—Editor.)

But, with so many traders already camped out in the bullish bandwagon, GE could have trouble finding enough new buyers to continue its intermediate-term up trend. For now, it seems a safe bet that Immelt's financial performance will continue to outshine that of his company.

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