When General Electric (GE) announced that John Flannery, a 30-year veteran, would replace Jeff Immelt as CEO, I saw the stock immediately jump $1 before formal trading even started for the day.
So no matter what I have to say about this change, it doesn't matter. The market has spoken. The market is a brutal taskmaster and, like the great Bill Parcells, the fabulous former coach of the New York Giants, said on many occasions, "You are what your record says you are," and the record for Jeff Immelt simply wasn't good enough to stay at the helm.
It doesn't really matter how you slice it. GE, for instance, is the worst-performing Dow stock since Immelt became CEO, down 31%. Compare that with Apple (AAPL) , up 11,670%, or United Health (UNH) , 985%, or Nike (NKE) , at 753%, to name the kings of the Dow during that period. (Apple is part of TheStreet's Action Alerts PLUS portfolio.)
But if you want more likely compares, consider that Caterpillar's (CAT) stock has rallied 314%, and United Technologies (UTX) has advanced 256%.
Much has been made of the fact that Immelt became CEO just a few days before 9/11, an unlucky break given all the exposure GE has to the aircraft business. But Boeing's (BA) stock has advanced 289% during that period and it's 100% exposed to that industry.
Perhaps you think it's an unfair comparison given that Immelt inherited a highflying company from the legendary Jack Welch, who left him with a company with an impossibly high valuation, and we should look over a shorter period of time.
First, I could argue that Welch is mortal and it isn't like you could never overtake the man's record. Second, Immelt's had 16 years to try to get the stock back to $41, where it was Sept. 7, 2001. Under Welch, the company's market value went from $14 billion to $410 billion, admittedly a tough act to follow. But the average person on the street would say Steve Jobs was irreplaceable and yet under Tim Cook the stock of Apple has gone from $53 to $144 in six years. It can be done.
Maybe there's another way to slice the record? Immelt spent a lot of time dismantling the financially led GE, the big criticism of the house that Jack built, especially because the model sure didn't work in the Great Recession. But if you match GE's stock against the stocks of United Technologies, Honeywell (HON) , 3M (MMM) or Boeing in the last one, five or 10 years, it has nowhere near the performance of any of those industrials during those periods.
There have been various moments where I thought GE's stock could really break out, particularly when Nelson Peltz and his firm Trian got involved in the stock. After Trian's purchase, the stock shot up from the mid- $20s to above $30. I know Peltz and Immelt initially had a good working relationship, but Immelt was unable to deliver on a lot of the numbers Trian was hoping for, and ultimately the union ended in disappointment to the point that Trian actively militated against Immelt with the board and may have played a role in accelerating the company's decision to change CEOs. Trian was hoping for two billion in cost cuts that could allow the company to earn $2 a share, but the cuts didn't come and the estimates kept coming down. I believe Trian's happy with Flannery, a very good sign.
Along the way, in the last year, several analysts became openly rebellious to the point where it became difficult to stay the course, especially when the bountiful 3.5% dividend was questioned. Perhaps the board had no choice in the end.
What should people do who own the stock, as my charitable trust does? We have been telling people as part of our Action Alerts PLUS club that it's worth holding on for any change, and now we are getting one so it makes no sense to go. I do believe Flannery is one of Jack's guys, tough as nails. I think there will be some pain here as Flannery probably has to guide down the Street's expectations, but there's plenty of value here and I'd hold on.
To be sure, I default to Parcells' admonition because personally Immelt has always been a good, solid, honest man who did his best. But the execution wasn't crisp and the luck -- he moved into oil and gas at the top -- just wasn't his. As the stock's jump says, time for a new CEO and time to hold on to GE's stock to see what happens.
