While I do not agree that the market is efficient all the time, I also do not agree that it is completely inefficient. Especially in today’s world where information is more accessible than ever before. The truth will likely be somewhere in the middle. Clear cases with little surprises and high transparency with lots of attention tend to be valued fairly or even overvalued, especially when sentiment is positive. However, when something is overlooked and / or less transparent, respectively a bit more complicated and even hated, there’s a chance to find hidden value.
Summary and key takeaways from today’s Weekly
– What became clear to me over the years, is that the market does not like complex and complicated stories with “hidden value”.
– There needs to be a catalyst to unlock otherwise wasted potential – case in point, spin-offs and break-ups are ideal instruments to create leaner organizations.
– I am going through the case study of General Electric which has come back to life through splitting itself up into three pieces.
There are mainly two ways to increase the value of a publicly traded business.
The first and more common one is through a positive business development with sales, earnings and cash flow growth, whether organic or through acquisitions (or a mix thereof). That tends to be more the buy and hold type of investment.
On the other hand, there’s also the turnaround story, respectively the untying of a knot which is holding back the true value of a business. This can be due to cyclicality or a conglomerate discount, meaning that the sum of the individual parts of a holding is bigger than the market is valuing the whole thing at a given moment.
Once, size was a proof of safety and durability, while several not complementary businesses under one roof were understood as a high degree of diversification.
Obviously, this has changed over time.
Today, big conglomerates with uncomplimentary businesses tend to get punished with a discount by the market.
Today, I want to reflect on the case of General Electric (ISIN: US3696043013, Ticker: GE), one of the more impressive and successful turnaround stories of the last years. GE went through all of it. It is well known that GE made it temporarily even to the world’s most valuable company, only to fall from grace and even being on the verge of bankruptcy during the Financial Crisis of 2008–2009.
As the oldest founding member of the Dow Jones, it got kicked out in mid-2018 after 102 years of uninterrupted membership. GE’s stock then lost another almost 50%.

However, today, GE’s stock is trading again at its pre-crisis highs of 2008 (though not at all-time highs from the Dotcom-bubble era). This was achieved through a major transformation which included selling off many non-core business activities and even more important, two spin-offs – or slashing the whole into three pieces.
Becoming stronger and more agile again through losing fat, so to speak.
This is also what I am expecting from my latest stock idea for all my members, due today Thursday, 04 July 2024 in my upcoming research report.
I am discussing the case of a holding company that has full-equity ownership of certain businesses as well as partial ownership in others. The latter, its investment portfolio, alone has almost the equity value of the whole conglomerate, so that the core businesses (many of which are even growing) are almost given away for free.
As we know, there needs to be a catalyst to unlock hidden values.
Luckily, the company already announced a plan to split itself up into several publicly listed companies due to its rather way too high discount that’s holding it back.
While the entire holding is complex, my mission is to break things down into easily digestible bites. The back the envelope math shows a decent discount that is ready to be unlocked over the next twelve months when the market starts to reprice the case, just as has happened with GE which I am using as a case study.
Even under conservative assumptions, the upside should be 50–100% over the next 12–18 months.

The average total return of my best stock ideas is ahead of the S&P500 and the iShares MSCI World. With my risks-first approach (paired with high upside), I am able to find stocks with great returns.
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both as per 03 July 2024 market close – since August 2022
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The successful turnaround of General Electric
If you search for “GE” today, you will find three of them:
- GE Aerospace (or what remained of the former GE)
- GE Vernova (the energy business, ISIN: US36828A1016, Ticker: GEV)
- GE Healthcare Technologies (ISIN: US36266G1076, Ticker: GEHC)
For about two decades since the bursting of the Dotcom-bubble at the beginning of this century, the goo’ old General Electric, one of the greatest American industrial icons, has been an almost incurably sick patient, stumbling and tumbling from one pit into another.
Having accumulated a significant debt burden on top of huge pension deficits and spending billions on dividends and buybacks, the situation looked pretty bleak.
However, with the management change from Jeff Immelt to Larry Culp in 2018, things were about to change. Culp was the first outsider to run GE in the company’s 126-year history. With the intention to leave no stone unturned, Culp first slashed the dividend to a symbolic figure alongside a huge divestment program in order to repay debt aggressively.
In a CNN article, they write about what happened at GE (highlights mine):
GE had already gotten rid of the 49% of NBC it still owned by selling it to co-owner Comcast in 2013, and sold off its appliance business to China-based Haier in 2016. But the pace of divestitures picked up under Culp. In 2020, it sold its iconic light bulb unit, which had been one of the foundations of the company’s 19th century birth.
CNN (see here)
Other units such as its aircraft leasing business were sold to competitors, a move that closed the books on its once-powerful finance unit, GE Capital. GE Capital had played a large role in the company’s broader decline with lending to a variety of customers and segments including subprime mortgages, and causing the company’s to lose its AAA credit rating in the midst of the Great Recession in 2009.
Looking at the development in charts and numbers, I picked the following.
First, the dividend cut:

Then, the big divestures (more than 25 bn. USD in 2021 alone!) …

… and debt repayment efforts (blue = debt repayment, black = net debt):

However, the stock did not really react, with the exception of stabilizing the downward move and the one-off crash of 2020.

Then finally in 2021, Culp presented to the public his plans to slash the conglomerate into three publicly traded pieces to make them operate independently and to unlock the hidden values inside the hated company.
Something almost unimaginable before.


First, though, the stock went through another trough in 2022 – which was more in line with general market developments and not company-specific.
By the end of 2022 / start of 2023, however, when the first spin-off (of the healthcare unit) was done, the sleeping giant started to wake up.
Even the most successful turnaround can take time – patience is needed, if the case is solid.
What happened was that – besides the successful lowering of debt outstanding – the case of General Electric has become less complex and clearer. With less complexity, there are less moving parts, enabling for an easier valuation of both, the spun-off company, but also the remaining business.
In 2024, finally also the energy business went public.
The result is all three of them trading at highs and in the case of the remain-co GE (Aerospace) even on levels where it has been in 2017 – however, then it was a way larger enterprise. So basically, today’s GE has the same stock price like then, but a way better balance sheet plus the two spin-offs come on top with a combined current market cap of ~80 bn. USD (or slightly less than half of GE Aerospace’s 175 bn. USD).

What also propelled GE Aerospace’s stock up was its strong underlying business.
Over the last three years, sales rose by ~50% and operating profits more than doubled, justifying a higher valuation multiple.
As the three GEs all had different business profiles, growth rates and cyclicality patterns, it makes absolutely sense to have them separated.
- GE Healthcare is not really cyclical, but it also does not grow pretty much
- GE Vernova, the energy business, consists of an old (e.g. gas turbines hydro and nuclear power, plus electricity grids, converters, etc.) and a new unit (wind, storage, software, etc.), if you want to which is already pretty diverse with different characteristics
- GE Aerospace is the most cyclical one, but it has been experiencing strong growth dynamics as of late
So in essence, more clarity, less complexity and a favorable business development are rewarded by the market with a higher stock price.
And CEO Culp has been rewarded with his contract being prolonged.

And this is what I am also expecting from my latest idea – a solid case with little downside (given no significant economic decline), but fair enough upside when the conglomerate starts to split itself up over the next twelve (to 18) months.
Even under modest and conservative assumptions, I am seeing an easily justifiable upside for the stock of 50–100% when the splitting takes place. The investment portfolio alone has almost the size of the entire holding market cap. The rest (operating units) are given away almost for free, though, these are cash generating and growing businesses.
A clear misprizing!

Conclusion
What became clear to me over the years, is that the market does not like complex and complicated stories with “hidden value”.
There needs to be a catalyst to unlock otherwise wasted potential – case in point, spin-offs and break-ups are ideal instruments to create leaner organizations.
I am going through the case study of General Electric which has come back to life through splitting itself up into three pieces.
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