You might be surprised to learn that General Electric (NYSE:GE) has something of a history with President-elect Donald Trump. The company owned a stake in NBC Universal during the run of "The Apprentice."
"I knew [Trump] a little bit when we owned NBC and did 'The Apprentice,'" CEO Jeff Immelt told Vanity Fair in August. "And I always found him to be fun to work with, endearing, competitive, lots of good things." However, in that same interview, Immelt questioned the campaign's rhetoric.
For his part, Trump was quite critical of GE during his campaign, accusing the company of closing U.S. plants and shipping jobs to Mexico. So, it's worth taking a look at how GE will fare under a Trump presidency. While it's tough to predict exactly what initiatives Trump will prioritize, his broad agenda as articulated thus far gives some hints that GE investors should be cautiously optimistic about what the future holds.
More than just roads and bridges
In the "Infrastructure" section of his campaign website, Trump proposes pursuing "an 'America's Infrastructure First' policy that supports investments in transportation, clean water, a modern and reliable electricity grid, telecommunications, security infrastructure, and other pressing domestic infrastructure needs." In a subsequent statement, Trump also listed mass transit and high-speed rail as among his infrastructure priorities.
The market certainly seems to think that construction, at least, will benefit from a Trump presidency. Shares of Caterpillar and several steel stocks jumped after his win. And despite a statement by Senate Majority Leader Mitch McConnell that infrastructure would not be a high priority, an infrastructure spending bill is generally seen as having bipartisan support.
Given the priority areas listed by Trump, General Electric would probably stand to benefit quite a bit from such an infrastructure spending package. GE manufactures gas, steam, and wind turbines for power generation, water treatment systems, energy grid systems, and locomotives, all of which would have a place in the infrastructure package Trump outlined.
An energetic plan
Trump had a lot to say during the campaign about fossil fuels, particularly coal, and his energy plan is dominated by the promotion of oil, natural gas, and coal. On his website, he makes a passing reference to green energy, saying that his plan "includes nuclear, wind and solar energy -- but not to the exclusion of other energy."
That might sound concerning for GE, one of the top manufacturers of wind turbines in the world. But in fact, GE would stand to benefit immensely from increased fossil fuel activity. And Trump appears to be proposing just that, stating, "We will become, and stay, totally independent of any need to import energy from the OPEC cartel or any nations hostile to our interests."
Because of complexities in the global oil market, it's tough to nail down an exact number of barrels produced that would free the U.S. from the need to import from nations "hostile to our interests." Trump is likewise unclear on that point, although he claims his plan will lead to $700 billion in annual economic output over the next 30 years. To achieve this, he says he will -- among other things -- lift moratoriums on energy production in federal areas and "scrap" many energy regulations.
Though here, again, details are sparse, increased U.S. oil and gas production can only help GE, which has invested heavily in the sector over the past few years. In October, GE announced it was merging its oil and gas division with Baker Hughes (NYSE:BHI) and would maintain a 62.5% stake in the new entity. This merger would create the second-largest oil services and equipment company in the world (second only to Schlumberger), which would benefit from increased domestic oil and gas production. To a lesser extent, GE would benefit from increased coal production as it sells equipment like generators and drive systems to the mining industry.
There are likely to be big policy shifts once President-elect Trump takes office in January. Two areas in which the shifts are most likely to occur are in infrastructure and energy. Luckily for GE, it has significant business divisions in both of those sectors. Assuming Trump is as good as his word, his tenure is likely to have a positive effect on GE's energy and transportation operations.
But GE, for better or for worse, is a massive global conglomerate. Any positive impact Trump policies might have on these two divisions are probably going to be diluted by lesser gains elsewhere in the company, or perhaps offset entirely by weakness in other divisions. Not to mention, more than half of GE's revenue comes from outside the United States, so even major changes by Trump are unlikely to have a substantial effect on the company's bottom line. The flip side, though, is also true: with its huge global footprint, GE is likely to weather any potentially harmful economic effects of Trump's policies better than most.
Luckily for investors, GE's business model isn't dependent on any particular course of action by the president-elect. GE investors will most likely be safe hanging onto their shares. And new investors should keep GE on their radar screens, as the company seems well-poised to succeed under a President Trump.