GE Stock: The Future of General Electric Company After Jeff Immelt

Lao Tzu, the ancient Chinese philosopher and founder of the Taoism, once said that "if you do not change direction, you may wind up where you are heading." Wise words indeed, and words worth reflecting on these days if you're a General Electric Company (ticker: GE) shareholder.

Longtime chief executive officer Jeff Immelt announced this week he would be stepping down from his post on Aug. 1 after 16 years at the helm of General Electric. John Flannery, current president and CEO of GE Healthcare has been named CEO.

GE stock is up 4.2 percent since the news was announced, outperforming both the Dow Jones industrial average (up 0.5 percent) and the Standard & Poor's 500 index (down 0.3 percent). Year to date, GE shares had traded down by 8 percent.

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Business gurus widely consider Immelt's reign as a transformative one for GE, leading the corporate giant through the 9/11 terrorist attacks, the near-collapse of the U.S. economy in 2008 and 2009, and through big internal changes like the restructuring of GE Capital, which steered the company away toward a manufacturing, and not a financial, culture. Under his leadership, GE divested itself from its legacy businesses in appliances, plastics and NBC Universal.

He also led the company's move from its longtime headquarters in Fairfield, Connecticut, to a new home in Boston in 2016.

Investors and traders are buzzing about Immelt's departure, although GE has already reported that it was long planned. Wall Street insiders say there's much on the line for investors of GE stock.

"Change is good -- that's how investors felt about a shakeup at one of the world's top companies," says David Russell, a senior manager at E-Trade. "General Electric after all, has been a cornerstone of global business for more than a century. It's cranked out everything from washing machines and light bulbs to jet engines, radar, and railroad engines. It was one of the first members of the Dow Jones industrial average in the late 1800s and spearheaded the roaring 1920s. It's also been associated with famous Americans ranging from Thomas Edison to Jack Welch."

Russell says that investment analysts and investors weren't as happy since Immelt started calling the shots in 2001, as they had been under Welch. "The day he (Immelt) stepped aside, the stock had its biggest rally in over a year," he says. "Options activity also spiked to more than 10 times the daily average as traders looked for the name to go from boring to bullish."

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Some complicated options trading in the immediate aftermath of the Immelt announcement point to a big bet the stock will continue to climb, Russell says, and that any move south of $29 per share means the options would be worthless. "But the real risk is $3 lower at $26, a level eyed by chart watchers since the stock shot to long-term highs in late 2015," he says.

Others agree that the move from Immelt to Flannery should be positive for both GE and its investors. "In my opinion, Jeff Immelt was not a particularly imaginative nor inspirational leader, but more of a managerial caretaker," says Timothy Wiedman, a management professor at Doane College in Lincoln, Nebraska.

Wiedman says Immelt "did very little" during his tenure to further build upon the successes that Welch had helped achieve for the GE organization. "Thus, I'd expect that under new leadership, GE will have a very good chance of improved performance -- especially in the stock market," he says.

Market experts don't exactly see GE's stock soaring into the stratosphere under Flannery, at least in the short term. Michael A. McClain , portfolio manager at Hedeker Wealth in Lincolnshire Illinois, sees the company's one-year price target at $33, although its dividend yield is attractive at 3.3 percent.

"Looking at GE's fundamentals, we expect to see further cost cutting and stock repurchases, and equity should be positive," he says. "We also expect to see margin expansion via the Alstom and Baker-Hughes deals."

McClain sees Immelt's departure and Flannery's entrance as a "positive catalyst" for the stock. "Under his guidance GE fell 29 percent versus a 113 percent gain in the S&P 500," McClain says. "His successor, John Flannery, is a 30-year veteran of GE, and he exhibited strong performance running the company's health care division."

One area of growth could come from the company's health care division (and Flannery's former managerial stomping grounds), says Jonathan Gertler, CEO and founder of Back Bay Life Science Advisors in Boston.

"General Electric's need for growth is well established," Gertler says. "Health care in their portfolio still remains a very significant capital equipment-oriented part of the business."

By and large, industry insiders see the move from Immelt to Flannery as a net positive for GE, although the jury is still out -- and will be for some time -- on how much, exactly, the move will impact the global brand's future prospects during the Flannery era.

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That said, big change is afoot at GE -- a scenario that would likely meet with Lao Tzu's approval.

Brian O'Connell is a contributing financial writer for U.S. News & World Report. A former Wall Street bond trader and the author of two best-selling books; "The 401k Millionaire" and "CNBC's Creating Wealth", he has 20 years experience covering business news and trends, particularly in the financial, technology, political and career management sectors. His byline has appeared in dozens of top-tier national business publications, including CBS News, Bloomberg, Time, MSN Money, The Wall Street Journal, CNBC, TheStreet.com, Yahoo Finance, CBS Marketwatch, and many more. Visit his web site at: https://brianoco.contently.com/. Or, visit this Amazon.com link for a list/review of some of his book titles. Reach out to him on LinkedIn.