One of the promises made by President-elect Donald Trump was to spend $1 trillion on updating the U.S.’s aging infrastructure. And you can’t have a conversation about infrastructure and the U.S. industrial complex without mentioning General Electric Company (NYSE:GE) and the investment potential of GE stock.
GE has its tendrils embedded deep in the global industrial scene, with interest in everything ranging from aircraft engines and power generation to oil and gas production equipment and medical imaging. But probably the most exciting area that General Electric is taking the lead in is the Internet of Things and its impact on the industrial sector.
It is with these key drivers in mind that investors should look toward next week’s fourth-quarter earnings report with an eye toward a bullish outcome. GE is expected to report a profit of 46 cents per share on revenue of $33.66 billion.
GE Stock Earnings Preview
A look at earnings history reveals that GE has topped the consensus estimate 66% of the time in the past 12 quarterly reports and has not failed to meet expectations once during this time frame.
Analysts are certainly on board with a bullish outlook for GE stock, with Thomson/First Call reporting that nine of the 16 analysts following the shares doling out “buy” or better ratings. Additionally, the 12-month consensus price target of $34.21 represents a premium of nearly 9% to GE stock’s current perch. That said, there is room for improvement here, and another solid quarterly report could be just the incentive to spark a round of upgrades or price-target increases.
Turning toward options activity on GE stock, we find our first real signs of negativity. In fact, the January/February put/call open interest ratio for GE stock currently rests at 1.36, with puts easily outnumbering calls among options set to expire within the next two months. This ratio rises to 1.49 for the Jan. 2017 series, i.e., those options most impacted by next Friday’s quarterly report.
Click to Enlarge Now, GE stock isn’t known for the kind of extreme volatility that drives speculative options trading, but January 2017 implieds are still pricing a respectable move of about 2.22% for the shares following Friday’s report. This places the upper bound at $32.20, with the lower bound at $30.80.
Technical support should hold firm in the $30 region, making it a good spot for a put-sell position. On the upside, however, a breach of technical resistance at $32 could lead to considerable follow-through buying in the wake of a strong quarterly report.
2 Trades for GE Stock
Call Spread: Those traders looking to bet bullish on GE stock ahead of earnings might want to consider a Feb $32/$33 bull call spread to take advantage of follow-through buying from a strong quarterly report. At last check, this spread was offered at 23 cents, or $23 per pair of contracts. Breakeven lies at $32.23, while a maximum profit of $77 is possible if GE stock closes at or above $33 when February options expire.
Put Sell: With the market feeling top-heavy amid the Trump rally (and since GE isn’t know for making large short-term moves), more risk-averse traders might want to consider a Jan 2017 $31 put sell position instead. At last check, the $31 put was bid at 16 cents, or $16 per contract.
On the upside, traders will keep the initial premium received as long as GE stock closes above $31 when Jan. 2017 options expire at the end of next week. The downside is that should GE trade below $31 ahead of expiration, traders could be assigned 100 shares for each sold put at a cost of $31 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
