July 15 (Bloomberg) -- General Electric Co. is finally doing what it should have done years ago: It's breaking up into more- manageable parts.

Jeffrey Immelt, GE's chief executive officer since 2001, plans to sell or spin off its ancient appliance and light-bulb businesses and to reduce the company's consumer lending by about half. He agreed last week to sell Japanese mortgage-loan and credit-card units to Shinsei Bank Ltd. for $5.4 billion.

Immelt still may not have it right. Investors continue to treat General Electric as a financial stock. In the first half of this year, 52 percent of GE's net income came from its GE Capital financial-services business.

Investors traditionally place less value on financial stocks than on the industrial businesses that comprise the rest of GE. Today, the subprime-mortgage debacle has made financial companies even more suspect.

The financial stigma has contributed mightily to a long decline in General Electric shares since they traded at $60.50 in 2000. The stock closed yesterday at $27.18. A dividend yield now at 4.6 percent and huge buybacks that increased per-share earnings haven't helped.

Other diversified companies without big financial arms embarrass GE. Shares of both 3M Co. and United Technologies Corp. generally rose while GE was slumping. The recent market decline has dragged down 3M from $97 in 2007 to $69.02. United Technologies has fallen from last year's $82.50 to $61.05.

Immelt's Dilemma

Immelt understands his financial problem -- to a point. He wants to reduce GE Capital's share of profit to 40 percent by 2010. Nicholas Heymann, a New York-based analyst at Sterne, Agee & Leach Inc., says GE Capital's share of earnings will drop to as low as 30 percent of the total. Investors still may think that's too much financial exposure.

GE Capital has created a dilemma for Immelt, says Stephen Hoedt, an analyst at National City Corp. in Cleveland. Financial assets give GE a higher return on investment than industrial endeavors such as jet engines, turbines, locomotives and medical- imaging equipment. But investors value financial earnings less.

General Electric's industrial businesses in a separate company would be valued at 16 times earnings, while GE Capital's would fetch a price-earnings ratio of 8, says Hoedt.

Immelt must do some ``out-of-the-box thinking'' on GE's financial business, Hoedt says. One suggestion: Sell the real- estate business, which investors would give a P/E of 6.

GE Cash Cow

Heymann, who has covered GE for 26 years as an analyst and worked at the company for four years, says that while Immelt is right to cut back on financial assets, GE Capital is still valuable as a cash cow for the parent company.

GE will pique investor interest this fall by putting NBC Universal on the market, Heymann says. In November, Vivendi SA, the French entertainment company, can sell its 20 percent stake in NBC Universal. The analyst predicts that GE then will sell NBC Universal's network, TV stations and film businesses separately, bringing in perhaps $30 billion to $35 billion.

While such a divestiture might give Immelt gobs of cash for dividends, buybacks and new investments, it wouldn't keep investors from fretting over his financial holdings.

GE's best bet would be a clean break from financial interests. A stand-alone GE Capital would lose the parent company's top credit rating. That business -- which so far has escaped horrendous damage from the mortgage plague -- would still have a better rating than other financial-services companies.

Three cheers for General Electric, the industrial giant.

(David Pauly is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: David Pauly in Normandy Beach, New Jersey, at dpauly@bloomberg.net

Last Updated: July 15, 2008 00:01 EDT