The General Electric Co. (NYSE: GE) stock price jumped more than 4% to $26.63 Monday after activist investor Nelson Peltz revealed he has accumulated a sizable stake in the global conglomerate.
Over the last four months, Peltz's Trian Fund Management LP has amassed $2.5 billion in GE shares. That gives the investment firm a roughly 1% stake, making it one of the company's top 10 shareholders. It also marks the biggest investment ever for Trian, which is known for prodding well-known companies to radically overhaul themselves.
Trian isn't pushing for a GE board seat. Still, its hefty GE position is likely to pressure GE CEO Jeffrey Immelt to get the sputtering GE stock price moving.
At today's high of $26.63, the GE stock price remains down roughly 30% since September 2001, when Immelt took the helm. In comparison, the S&P 500 is up about 79% in the same period.
In a statement, Peltz said that GE stock is "undervalued and underappreciated." He also stated that he supports Immelt and his team.
In a white paper Trian released Monday, the firm called the last 10 years a "lost decade" for GE shares.
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Trian is calling on GE to implement further cost reductions, to tread cautiously on acquisitions, and to consider shedding more of its finance unit.
In April, GE said it was looking to sell some $200 billion in GE Capital assets. The aim is to remove GE from the "too big to fail" bank category. GE's goal is to generate 90% of its profits from its industrial units by 2018, up from 55% in 2013.
Trian also noted the company could take on $20 billion in debt to buy back shares. GE could return over 40% of its current market value to shareholders by the end of 2018, according to Trian.
GE said it welcomes Trian's investment. The company maintains it is focused on improving margins and returns, and reducing costs. GE states it plans to return $90 billion to investors through 2018.
In 2015, the GE stock price has climbed 5%. And according to Money Morning experts, it is a great stock to buy and hold now...
Diversification Spurs GE Stock Price's Run
Money Morning Executive Editor Bill Patalon recommended GE shares this summer, citing both its plethora of products and heavy insider buying.
"GE is in several growth segments: Aircraft engines, medical-imaging equipment, power generation, water treatment and, as a great special 'kicker' - the 'Internet of Everything' (IoE)," Patalon said. "Demand in each of those sectors is only going to grow, so GE can take comfort in knowing there will be plenty of demand for its wares long term."
Another bullish sign for GE stock is the robust insider buying. According to Patalon, that is the "single-biggest indicator that a stock is going to move higher."
In 2014, CEO Jeffrey Immelt bought an additional 40,000 shares of GE. That brought his total investment to more than $47 million worth of GE stock. And he wasn't the only one. Two other independent GE directors also scooped up 14,000 shares combined that year.
Corporate insiders sell their company's shares for many reasons, he explained, but buy for only one: "They see a chance to make money on their own stock."
Another key draw is GE's well-above average 3.46% dividend yield and its commitment to increasing payouts.
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Related Articles:
- CNBC: Peltz's Trian Fund to Invest $2.5B in GE
- Reuters: Nelson Peltz's Trian Takes $2.5 Billion Stake in General Electric
- The Wall Street Journal: Nelson Peltz's Trian Makes Big Bet on GE