General Electric (NYSE: GE) wasn't alone having a rough couple years during the Great Recession, thanks in large part to massive losses from GE Capital . Since then, GE has gone on a crusade to return to its roots and become the industrial conglomerate it was once known to be, much to the delight of investors. Over the last five years, GE largely matched the return of the S&P 500 -- until its turnaround lost steam over the last 18 months.
After 18 long months, is it finally time to invest in General Electric's industrial-focused future?
One reason for investors to consider giving GE a second chance is simply because there isn't much risk involved. Gone are the days where GE Capital can hugely impact the business ; GE will continue to divest itself from the capital lending business over the next 24 months.
In addition to reducing the scale of its riskiest business segment, GE has a diverse business portfolio which helps reduce dependence on any one segment for profits.
The good news is that GE's focus on industrial businesses is beginning to pay off. In the first quarter of 2015, GE's industrial segment profit was up 9%, with five of seven business segments increasing in earnings. In addition to strong results across most of its divisions, another reason for the quarter's success was GE's ability to cut costs while creating synergies between many of its business products and segments, which is evidenced by GE's improved industrial margins. GE's industrial gross margins and operating margins grew 90 basis points and 120 basis points to 26.2% and 14.6%, respectively, in the first quarter compared to last year.
Another reason for investors to be optimistic about giving GE a second chance in 2015 is because the company continues to grow its backlog of orders. In the first quarter, GE's backlog rose 7% to $263 billion, compared to last year. That's a solid amount of revenue transparency for a company that generated $148 billion in revenue last year.
Yet another reason investors should be optimistic about GE's potential rebound is the progress it has made in returning value to shareholders over the last five years.
A good sign
Insiders can sell stock for any number of reasons, but there's only one reason to buy stock in the company you work for: You believe the price is going higher. That's a good sign when you consider that four GE directors bought more than 83,000 shares at an average price of $27.15 for a total of nearly $2.3 million in late April. It's an even better sign when GE directors are putting money where their mouth is, as it were, with GE recently setting a multi-year high in its stock price in April.
Jonathan Moreland, director of research for InsiderInsights.com, told Barrons:
Insiders have been persistently bullish on the stock. It was flat all of last year and spiked up nice, there's been a pullback and insiders are still buying. GE is a good, solid multinational with a decent dividend.
Ultimately, it all comes down to what you're looking for in an investment. If you're looking for an increasingly stable, profitable company to help your portfolio maintain value over the long haul, GE is a solid bet, and investors would be wise to give the company a second chance from its stumble during the financial crisis. If you're looking for a high-growth, exciting company, you might want to look elsewhere.