Despite its stunning plunge this week, General Electric stock could remain a value trap for several years, until the company can convince investors its ambitious turnaround plan will work.
Shares of the stalwart industrial conglomerate dropped as much as 13 percent after the company announced plans to narrow its business focus, slash its dividend and restructure its board and pay structure.
Given the company's reputation as a reliable income source and a cornerstone of American capitalism, investors might be tempted to dive in after the steep slide in the stock price.
But amid all the moving parts investors had to watch regarding GE, one word stood out: "reset." That's the term CEO John Flannery used to describe 2018, and it's what investors focused on as a reason it might pay to sit on the sidelines for a while.
"The word that jumped out to me more than anything was they called it a 'reset' year," said Burns McKinney, a portfolio manager for dividend value products at Allianz Global Investors. "If you're an investor, obviously when GE is down 40 percent for the year you want to put the bucket under it and and get it at the bottom. But when somebody tells me they're in a reset year, then there's no hurry to get in."
Allianz bailed on GE two years ago when it decided that other companies, like Honeywell and United Technologies, that were growing their dividends and managing their businesses more effectively represented better buys.