In July 2007, I joined a group of journalists at the General Electric (GE) offices in Rockefeller Center to ask CFO Keith Sherin some questions. At the end of the meeting, a few executives took me aside and asked me what I thought GE should do to boost the company's perception among investors. I told them they ought to prune the portfolio and focus on growing industries where GE had a competitive advantage.
GE is certainly taking steps to prune the portfolio. Of course, investors have been pushing GE to dump NBC and lighten up on financial services for years. Unfortunately, GE is not getting top dollar for NBC, since its ratings have fallen off dramatically since the 1990s when it enjoyed top ranking thanks to Seinfeld and Friends. I estimated in 2007 that NBC was worth between $40 billion and $45 billion. Based on the $5.8 billion GE will pay for Vivendi's 20% stake, NBC Universal is now worth about $29 billion.
As GE pares back what will initially be a 49% stake in NBC, giving Comcast (CMCSA) the remaining 51%, GE will be left with a set of businesses that could do well if the global economy recovers and developing countries -- particularly China and India -- keep upgrading their industrial infrastructure. As Bloomberg News reports, GE's remaining business portfolio will include its financial, health-care and industrial businesses, which include the world's biggest maker of jet engines, locomotives and medical imaging machines.
In short, GE is beginning to look more like the company I and many other critics have been calling for, one whose businesses are leaders in big, growing markets. But CEO Jeff Immelt has more work to do to realize this vision. That's because GE Financial continues to have significant baggage from the financial crisis and GE remains heavily indebted.
So owning GE stock is now a bet on two uncertain outcomes. First is the hope that GE can get rid of all its financial baggage -- not to mention other "legacy assets" such as its appliance business, which it tried to dump in May 2008. Second is the possibility of a global economic rebound which would spur big investments in infrastructure -- demand that GE would be well-positioned to satisfy.
If these things happen in the next five years, GE would finally emerge -- after Immelt had been at its helm for 13 years -- as a stock worth owning.
Peter Cohan is a management consultant, Babson professor and author of nine books, including Capital Rising (due in June 2010). Follow him on Twitter. He owns GE shares and has no financial interest in the other securities mentioned.