Top Picks 2020: General Electric (GE)

01/13/2020 5:00 am EST

Focus: INDUSTRIALS

Jim Powell

Principal Analyst, Global Changes & Opportunities Report

My conservative Top Pick for 2020 is General Electric (GE) — a fallen angel that was also my leading choice for 2019. The stock gained 54% after my recommendation last year. I think the stock will continue to do very well in 2020, explains Jim Powell, editor Global Changes & Opportunities Report.

As you may recall, GE stumbled badly several years ago when it strayed from its profitable industrial businesses into areas where it had little experience.

The worst-performing of the new operations was GE’s expansion into financial services during that sector’s boom. At the time, everyone in the industry was coining money with subprime mortgages and rocketing housing prices.

When the financial service boom turned into a bust starting in 2007, GE suffered huge losses. The Great Recession further hammered GE’s earnings. The shocks took GE’s stock down from $31.60 in November 2017 to just $7.26 in December 2018.

As usually happens when a company goes from great success to much harder times, the board of directors cleans house and hires new management. In GE’s case, Larry Culp was brought in as the new CEO. Since then, Mr. Culp has been doing an outstanding job dumping what wasn’t working and returning the company to its profitable industrial roots.

In October, Mr. Culp made another tough decision to slash the company’s pension deficit by as much as $8 billion, and its debt by as much as $6 billion. To reach those targets, GE will freeze the pensions of 20,000 salaried workers and offer lump sum buyouts to many others. The pension change was a shock – but it was a good financial decision.

GE’s turnaround will not happen quickly and probably not smoothly. However, I feel strongly that long-term investors who take positions in GE at today’s price will be very happy they did. It won’t be the first time that this 126-year-old company stumbled badly and then recovered.

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