General Electric Company (NYSE:GE) hasn’t looked this promising in ages thanks to its transition into a pure-play industrial name, but some current fundamental and technical headwinds make GE stock not all that attractive in the short term.
In other words, as good a long-term bet as General Electric stock may be, it has room to fall farther.
Shares in GE are off more than 4% for the year-to-date and the downside momentum is only accelerating. Remember, this was a name that was flying high fewer than two months ago when it was almost pacing the S&P 500‘s 5% YTD performance. But after it hit a 52-week high in mid-July, the wheels fell off.
The proximate cause for this change in trajectory was GE’s second-quarter earnings report. The sprawling industrial conglomerate’s diversity served it well, to be sure. Strength in the aviation and power and healthcare segments offset continued weakness in transportation and oil and gas.
But be that as it may, orders — a key measure of demand — slipped 2%. On an organic basis, which strips out the effects of mergers, acquisitions and currency, GE’s orders fell 16%. Worries about GE’s order backlog and continued weakness in the energy market have clearly put a damper on sentiment.
GE Stock Is Limping Along, But It’s Not Lame
These should be transient concerns, but that doesn’t mean GE stock can’t get cheaper still. After all, as tough as the macroeconomic picture may be for the industrial sector, General Electric is taking something of a unique beating this year.
For example, sector exchange-traded funds of which General Electric is a major weighting are having some market-beating years. Vanguard Industrials ETF (NYSEARCA:VIS) is ahead by over 7% year-to-date. The iShares Dow Jones US Industrial (ETF) (NYSEARCA:IYJ) is up nearly 9%.
The market clearly has problems with General Electric that extend beyond its exposure to the trends weighing on peers.
To be fair, GE stock has been a sector outperformer for an extended period of time. It’s not unusual that it would give back some of that lead once the euphoria of the GE Capital exit wore off.
True, General Electric stock’s underperformance this year has made the valuation more attractive, but only to the point where it looks pretty fairly priced, not necessarily a bargain. A forward price-to-earnings multiple of more than 17 on a long-term growth rate forecast of less than 13 is hardly a fire sale.
Click to Enlarge And then there’s the issue of a deteriorating technical picture. General Electric stock has tested support only two times at its 200-day moving average over the last year. In both cases, shares passed with flying colors after buyers poured in once that key level started to buckle.
Not so this time. GE stock fell through its 200-DMA last week. It mounted a test of resistance against that level shortly thereafter but failed. So much for a price floor.
If there’s a bright spot to the recent price action, it’s that GE stock looks oversold. But then that’s really of more interest to traders than long-term GE bulls.
The buy-and-hold case on GE stock remains intact, but don’t be surprised if shares continue to limp along into the end of the year. At some point they’ll be too cheap again to forego picking up more.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
