On Monday investors learned that Trian, the hedge fund run by activist Nelson Peltz, has invested about $2.5 billion in General Electric. And before anyone dismisses or downplays the stake Trian has taken in this industrial — Jim Cramer wants you to think again.
In fact, back when Cramer was writing "Get Rich Carefully," he found that Peltz was the only activist that investors could piggyback from and consistently beat the market after he announced his investments.
"That matters because I think the logical conclusion you might reach about this investment otherwise is that it doesn't mean anything: Peltz can't effect change. He won't be able to move a stock that has been stuck at these prices forever. I think that is wrong," the "Mad Money" host said.
Cramer thinks that Peltz has recognized that index funds these days are run by people who think their job is to sit like a bump on a log. Instead of accommodating that, Peltz can play the role of a trusted advisor with terrific ideas on how the capital structure of a company could look.
And now that GE has decided to shed its GE Capital unit, Cramer suspects that Peltz thinks the new GE is too unrecognized and he can make some big dough on it now.
Ultimately, he calculated that if GE CEO Jeff Immelt cut and boost leverage to buy back as much as 40 percent of the company's shares, that could yield $2.20 per share in earnings power in three years. Meaning, he could double in the stock.
Double might seem like a farfetched number to some, and the earnings per share number is only slightly above what Wall Street is looking for now.
"But as someone who has argued passionately that this company, with only 19 percent exposure to China or oil and gas, and almost 4 percent yield, is dramatically undervalued — I think GE could go through $30 rather easily," Cramer said. (Tweet this)
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That means Cramer is siding with Peltz. Especially when the market has practically ignored GE's major restructuring in a time when there are plenty of industrials with no real growth. Cramer thinks it could be the most undervalued large cap industrial out there, and there just hasn't been a catalyst to buy the stock until now.
Immelt's welcoming of Peltz showed Cramer that Immelt understands just how important it is to get his stock moving and to have the GE reorganization noticed.
"If Immelt listens and takes Trian's advice to heart, then you shouldn't sell this pop, you should buy it," Cramer said. (Tweet this)
Peltz is just that good, and if Immelt works his magic, too, then Cramer wouldn't be surprised to see GE go much higher.