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General Electric's Move Shows the Power of Investor Sentiment

Source: GE.

Does General Electric stock deserve to climb higher?

General Electric said the move would result in a "simpler, more valuable company." Yet, at least in theory, the change changed nothing fundamental about GE's valuation. Presumably, the company's announcement that it would realize a total of about $26.5 billion in proceeds from transactions with buyers of GE's real-estate and loan assets represented fair market value of those holdings, and so the share price should already have reflected the potential value of those assets in a potential sale. Indeed, the observation of GE Capital CEO Keith Sherin that "this is a great market for selling financial assets" arguably should have led General Electric shareholders to value the stock more highly before the transaction.

The practical answer, though, is that although a company's assets have intrinsic value, it takes action from executives and other employees to realize that value. Today's jump shows shareholders were skeptical that General Electric would ever make a drastic move to get out from under GE Capital's weight and refocus even further on its high-growth industrial businesses. Once GE proved them wrong, they acknowledged the move's wisdom by putting a higher value on their shares.

Often, investors make the mistake of thinking that stock prices move up and down randomly based on little more than the whim of the broader market. Yet in many cases, if you can find companies that other investors are underestimating and can foresee that corporate leaders will eventually discover how to realize their full value, those stocks can be among the most successful in your portfolio.

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The article General Electric's Move Shows the Power of Investor Sentiment originally appeared on Fool.com.

Dan Caplinger owns shares of General Electric Company. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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