General Electric Co. (GE - Get Report) has shed more than half its value in the last year as turnaround plans at the industrial giant haven't gained much traction. On Monday, March 26, shares hit their lowest level since July 2009 to make the company the only loser on the Dow Jones Industrial Average for the trading session. In fact, General Electric has been the worst performer on the blue-chip index for two years.
So why would living legend Warren Buffett find it a suitable investment?
Market chatter on Tuesday, March 27, suggested Buffett could be considering investing in GE, and he said recently to press that he would consider it with GE shares at the right price. There are a number of reasons Buffett, the chief executive of Berkshire Hathaway Inc. (BRK.A - Get Report) , might be mulling an investment in GE.
He Understands It
Buffett has said before, "Never invest in a business you cannot understand."
As far as GE is concerned, Buffett can understand what exactly the company does and how it aims to turn a profit by doing so.
The same couldn't be said for something like Action Alerts PLUS holding Alphabet Inc. (GOOGL - Get Report) . Buffett has said he was approached in the early 2000s about investing in Google. He turned down the opportunity, though, because he wasn't clear on how a search engine could create a long-lasting and profitable advantage over its competitors.
General Electric has eight major segments that each make sense: Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lighting and GE Capital. None are particularly complicated, and each is uniquely suited to answer some sort of consumer need.
GE Has Deep Value
General Electric is just about as much of a value company as it gets. As a firm with stock that hit a nearly nine-year low this week, GE certainly is not expensive.
But if Buffett's prognostication is on point, GE could have much bigger earnings capacity in the future. If so, it's a textbook value stock: an unjustifiably low price based on the shares' intrinsic worth. That would be a major draw for Buffett, who has been quoted as saying he's "85% Benjamin Graham" when it comes to his investment thesis.
Graham has long been considered the grandfather of value investing. He popularized what could be considered bargain hunting on the stock market - buy low if you can identify room for future earnings potential.
It's important here to consider one of Buffett's most widely circulated quotes: "In the short term, the market is a popularity contest; in the long term, it is a weighing machine."
An Investment in GE Is an Investment in America
General Electric is also a deeply American company. While it's grown to multinational status with operations around the world, its roots are planted firmly in the U.S. where it was founded 125 years ago.
That's another highlight for Buffett, who wrote in 2008 that he at that time held only American stocks and U.S. government bonds in his personal investment account.
"If prices keep looking attractive, my non-Berkshire net worth will soon be 100% in United States equities," Buffett wrote in a New York Times editorial then. After all, GE's roots go as far back as Thomas Edison and the invention of the first incandescent light bulb. Does it get much more Americana than that?
"In short," Buffett wrote, "bad news is an investor's best friend. It lets you buy a slice of America's future at a marked-down price."
Whatever Buffett's game plan, it looks to be working for GE. The stock jumped the most in two years Tuesday on Buffett speculation alone.Behind the Label: Full CEO interviews on our Youtube Channel