By Sai Sachin Ravikumar and Ankit Ajmera
(Reuters) - General Electric Co <GE.N>, which was the most valuable publicly traded U.S. industrial conglomerate at the beginning of the year, could sink to the No. 4 spot after a prolonged selloff that has shaken confidence in the company.
Valued at close to $580 billion at the turn of the millennium, GE has dropped to around $125 billion and it was surpassed in value by 3M Co <MMM.N> in January for the first time since the 1970s.
At one point last week, the gap between GE and fellow U.S. industrial Honeywell International Inc <HON.N> was $6 billion, or 5 percent. The difference between GE and United Tech Corp's <UTX.N> market values fell to $15 billion.
(GRAPHIC: GE Market value - http://reut.rs/2D6JFB5)
Helping to narrow the gap is a 45 percent slide in GE stock over 2017 and a 16 percent fall this year.
Driven in value by a series of investments in several sectors during the 1990s, GE is now paying the price for focusing outside its traditional industrial manufacturing turf, while its rivals have enjoyed a more steady ascent thanks to a sharper focus on their industrial roots.
"All the large-cap diversified industrials like Honeywell, United Technologies and 3M to name a few, have benefited from some of the money that's come out of GE," said JPMorgan analyst Steve Tusa, who has a five-star rating on Thomson Reuters Eikon for recommendation performance.
"You're really talking about maybe a mid-teens stock at 2020 ... $20 I think is a very long-term target that really isn't in the equation at this point," Tusa said of GE's shares, which closed at $14.64 on Monday.
Tusa rates GE's stock "underweight" with a price target of $14.
But some analysts are optimistic about GE's stock and future prospects.
William Blair & Co analyst Nicholas Heymann believes that the worse could be over for GE, and its shares are likely to begin stabilizing before moving higher as 2018 progresses.
"I think GE shares have been a bit oversold due to excessive fears about liquidity," Heymann wrote in a note.
Heymann cites higher oil prices, improving performance of GE's aviation and healthcare businesses, and the recent nomination of three "exceptionally talented" directors to GE's board. He has an "outperform" rating on the stock.
GE shares slid even after the company replaced Jeff Immelt as CEO last August with John Flannery. His turnaround plan, which includes cutting jobs, slashing GE's dividend and a possible break-up of the conglomerate, is likely to take a year or more to show results.
When Immelt took over in September 2001, GE was the most valuable U.S. publicly traded company. But during his tenure, which ended July 2017, the stock price fell about 40 percent.
Over Jack Welch's stint as CEO from 1981 to 2001, GE's value rose from $13 billion to several hundred billions of dollars. Welch has since written or co-written bestselling books on management.
(GRAPHIC: GE share performance under three different CEOs - http://reut.rs/2Fh6rfu)
GE's stock trades at roughly 14 times its forecasted earnings, well below the multiples of its peers, as the graphic below shows. The number helps investors gauge the value of a company relative to its earnings.
Saint Paul, Minnesota-based 3M, best known for its Post-it notes and Scotch tape, saw its stock rise nearly 32 percent last year thanks to strong results that helped the company lift its yearly earnings forecast three times.
Honeywell's stock also rose around 32 percent in 2017, as the company sold more aircraft parts and as its energy customers bought more industrial equipment. Its warehouse automation equipment and software benefited from an ecommerce boom.
(GRAPHIC: GE Forward Earnings - http://reut.rs/2FlZtGg)
"We like Honeywell, given a solid management team and exposure to end markets we favor," said Richard Grasfeder, a portfolio manager at Boston Private Wealth LLC, which holds about 787,600 shares in GE as of the end of 2017.
United Tech, which sells the Pratt & Whitney jet engines, has a "significant long-term advantage" over GE, Grasfeder said.
"We think United Tech could provide learning points for GE management and investors," Grasfeder said. "Good leadership is critical."
(Reporting by Sai Sachin Ravikumar and Ankit Ajmera; Additional reporting by Ankur Banerjee; Editing by Patrick Graham, Bernard Orr)