Can GE Stock Bounce on a Leaner, Meaner General Electric Company?

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Spring cleaning is going on overtime at General Electric Company (GE).

Can GE Stock Bounce on a Leaner, Meaner General Electric Company?

Earlier this year, GE announced the sale of its appliances business to Chinese multinational Haier Group. The deal is worth $5.4 billion and is a significant boost for both parties. Haier gets immense exposure to the lucrative U.S. retail market. General Electric, on the other hand, can streamline its company to focus on core, profitable business units.

But with GE stock not even at parity for the year, will this new strategy ever pay off?

GE Stock Making Good Moves

You have to give credit to the General Electric management team for their tough but necessary decision. Previously, GE had become too bloated with product lines that generated disparate revenues.

Recent asset sales — such as the company’s approximately $200 billion divesture of its finance division — should provide more value to GE stock. All of these efforts align with the greater goal of turning General Electric into a “digital industry company.” This means making the most of technology to increase efficiencies in their profitable pipelines.

On a forward-looking scale, GE is amping up its presence in the European markets. Industry experts have forecasted an increase in the “digitalization culture” that should have a very pronounced effect in Europe. As such, General Electric has opened up an office in Paris to take advantage of this trend.

In addition, GE is in talks with Saudi Arabian Industrial Investments Company to help diversify their country’s energy-dependent economy.

All of these developments should be net positive for GE stock. The problem is that Wall Street doesn’t see it the same way. The industrial giant has had a rough time in the markets this year.

Also, nearer-term momentum is weak, with GE stock down over 1% in the past 90 days. That’s awfully discouraging when the vertically challenged SPDR S&P 500 ETF Trust (SPY) is up 2% over the same time frame.

So what’s an investor to do?

How to Play General Electric Stock

I wouldn’t necessarily give up outright on GE stock. Clearly, General Electric is a staple in the markets and is unlikely to have a severe meltdown. At the same time, it’s an admittedly boring stock that has limited upside potential — and its circumstance may worsen. It should be noted that even prominent optimists for GE stock acknowledge the difficult play here.

GE stock, GE
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Source: Source: JYE Financial, unless otherwise indicated

On a consecutive quarter-to-quarter basis, GE stock averages gains of only 1% in the third quarter. In the other seasons, General Electric shares average more than 3%.

That doesn’t quite translate to “sell in May and go away.” Since GE stock is largely a secular organization, we can expect it to do well so long as the underlying economy does well. What it does mean is that if you had a great Q2, don’t expect too many fireworks in the summer.

But the real issue concerning investors is that GE stock may be undergoing a paradigm shift.

GE-stock-returns
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Source: Source: JYE Financial, unless otherwise indicated

General Electric clawed its way back and in the current decade, annual returns average 17%. However, it’s a far cry from the company’s heyday. Technically, the chart for GE stock matches some of the upside “tiredness” seen in the major indices.

As a safety valve for your portfolio, my opinion is that General Electric fits the bill nicely. However, in light of the asset sales, the trailing one-year market performance of 13% is slightly disappointing.

Wall Street may be unsure of GE stock, as there are risks associated with the new business transition. Furthermore, it takes a lot to move a company with a market capitalization equivalent to the earning potential of a small country.

In the end, it really comes down to the expectations of the investor. As the “next big thing,” GE stock would be a bust — transition or no transition. Traders could make money on an options play, although history and recent activity suggest more downside risk than upside.

For the rest of us, GE will do what GE has always done, but likely in a more labored manner. In other words, it’s boring — but should we expect anything else?

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2016/07/ge-stock-general-electric-leaner/.

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