In my view, the true explanation for GE's current funk is a lot simpler -- the company is actually highly cyclical, and many of its most important businesses are suffering right now. But like all cyclical stocks, GE could post big gains as soon as the economy turns back up.

It's true that Welch overreached with the Honeywell merger proposal and that he underestimated the problems he would face with European antitrust regulators. But the merger wouldn't have substantially changed GE's earnings outlook -- and its failure doesn't make a big difference, either.

The more pressing question is whether Immelt can continue the key trends that produced Welch's successes. GE was a superior company before Welch took over in 1981, replacing Reg Jones. Following a strong act is an achievement in itself, and Welch did even better than that, kicking the company up another notch. Welch's strategy had three prongs: cutting costs as aggressively as possible, trying to make each of GE's businesses a leader in its sector, and recognizing that expansion into financing would boost profits on the things GE sells.

I expect that Immelt will be able to maintain the vaunted management practices that Welch emphasized. He may also be able to add to the company's growth potential by shedding some less-promising cyclical businesses, like appliances. The current consensus is that Immelt will be able to speed up the company's growth rate. While earnings rose at a 13 percent compound annual rate over the past five years, forecasts are for a growth rate above 15 percent in 2002 and following years.

Whether those projections come through as expected depends on just one thing -- how quickly the economy comes back. Despite all the praise Welch has received in recent years, the plain fact is that GE remains a highly cyclical company. Some of that is cushioned by internal diversification, whereby divisions with long-term growth trends balance those that closely track each up and down in the economy. But cyclical divisions, such as plastics and broadcasting, account for more than a quarter of GE's earnings. And even the more stable businesses, such as power-generation equipment, suffer in a protracted economic slump.

To fully realize GE's 15 percent-plus annual growth potential, the company needs a stretch in which all the economic trends are favorable. Fortunately, we should reach that point within the next year or two. Meanwhile, GE is selling at a remarkably cheap valuation. I've recommended the stock half a dozen times since late 1999, when it was trading at $46 a share (adjusted for subsequent splits). After several ups and downs, GE is now 15 percent below that price and nearly at its cheapest level in two years. Based on projected earnings for 2002, the stock is currently trading at less than 24 times earnings -- a very reasonable price for one of the world's greatest companies.