If you were to make a checklist of the types of businesses that should benefit from Donald Trump in the White House, General Electric Company (NYSE:GE) would check a lot of the boxes. An oil and gas business? Check. Infrastructure-related businesses such as transportation and lighting? Check. Domestic production of goods? Check. But will all that make a difference for GE stock?
The early signs are good at least. Since Trump was elected, GE stock is up 7%, though those gains are roughly in line with the Dow Jones Industrial Average’s gains (but ahead of the S&P 500).
Considering General Electric stock is flat in the past year, however, a 7% gain in two months is a step in the right direction.
Good Two Months for GE Stock
In reality, however, that run-up in GE stock had much more to do with its deal to buy out oilfield services giant Baker Hughes Incorporated (NYSE:BHI) in early November. So the past two months may not be a true gauge of Trump’s potential impact on General Electric stock. The next four years will be.
If Trump follows through on campaign promises to spend $1 trillion on infrastructure, to make America energy independent, and to be pro-business, it could help return GE to the consistent double-digit sales growth it enjoyed prior to the Obama administration.
But four years is a long time, especially if you’re an investor. When looking to buy a stock, more immediate catalysts are preferable. In that regard, the Baker Hughes addition could help; but the deal won’t become final until the middle of this year, and is expected to add just 2.7% to GE’s bottom line in 2018. Both the Trump administration and the Baker Hughes deal should boost General Electric stock, but each is likely to be more of a slow burn than an instant jolt.
Now, from a technical standpoint, GE stock looks a lot better than it did two months ago, trading well above its 50- and 200-day moving averages. At $31, GE is still shy of its 52-week highs near $33; however, if it breaks above that long-term resistance line, then perhaps the momentum from Trump’s election and the Baker Hughes deal will last well into the new year.
General Electric Is Not the Best Trump Play
But no matter who’s in the White House, General Electric is no longer a growth stock. It is a solid dividend payer, having upped its payout each of the last six years and with a current yield just above 3% (though its 100% payout ratio is a bit of a concern). And at 19 times forward earnings estimates, GE stock trades at a fairly reasonable value.
If you’re an income investor looking for a steady dividend grower with a decent yield, General Electric is a good buy for the next few years. But as a company it may simply be too diversified for GE stock to get a major pop once Trump takes office and starts setting policies. There are more direct ways to play a Trump presidency and earn big short-term returns.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.