Glenn Surowiec of GDS Investments presented his in-depth investment thesis on General Electric (NYSE: GE) at Best Ideas 2018.
GE offers compelling risk-adjusted appreciation for patient investors. Like many conglomerates with long operating histories, GE’s practice of periodically reconfiguring its assets is a critical component of its strategy to remain relevant and meet oncoming challenges. With his history of success at GE Healthcare, and the turnaround plan he recently announced, John Flannery has all of the characteristics of an “outsider” CEO. Under that plan, GE will concentrate on four core businesses – power, aviation, healthcare, and renewables. By 2020, GE will dispose of its remaining divisions (e.g., transportation, lighting, oil and gas) through sales, spinoffs, joint ventures, or other methods. CEO Flannery has cut the dividend by 50%, restructured the board of directors, and created a more holistic and accountable culture around capital allocation. Glenn believes the stock could be worth at least $35 per share within three to four years. CEO Flannery, Francisco DeSouza, and famed value investor (and GE board member) James Tisch apparently agree, and have been accumulating shares. Tisch recently purchased $54 million in stock on the open market. GE’s turnaround will be difficult, but it is not without precedent. Glenn encourages interested investors to study Ed Breen’s turnaround at Tyco from 2002-2012, and what Brian Moynihan has been accomplishing at Bank of America since he became CEO in 2010. The issues facing GE today are similar to the ones Tyco encountered in 2002, and which Bank of America addressed in 2010. Investors who had the insight, courage, and patience to invest in those two turnarounds were handsomely rewarded in time, and the same opportunity may lie ahead for those who invest in GE.
About the instructor:
Glenn Surowiec started GDS Investments in 2012. From 2001 to 2012, he worked for Alsin Capital Management, Inc. as an equity research analyst (2001-2003), co-portfolio manager (2003-2008), and portfolio manager (2008-2012). Glenn has a BA in Management (Accounting concentration) from Gettysburg College and an MBA (Finance concentration) from Southern Methodist University. His interests include running, cycling, golfing and youth coaching.
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