Shares of General Electric Company (NYSE:GE) have been a disappointment this year, falling 7.7% in 2017. Over the past year, the stock has stumbled 3%. While this underperformance is a turnoff for some investors, others view it as an opportunity to buy GE stock.
Admittedly, General Electric is not the sexiest name in the S&P 500. Nor is the fastest-growing or highest-yielding. Some of its business units — like energy, for instance — are doing poorly. Management vowed to cut $1 billion in costs annually, but so far doesn’t seem on track to do so.
The Positives for General Electric
While there is a small stack of negatives, there are positives regarding GE stock. For starters, it yields 3.3%. Although its dividend growth is nothing to write home about — about 4.5% in each of the past two years — 3.3% is higher than the yield from the S&P 500 or a 10-year Treasury note.
For some investors, the dependable income is worth more than earnings and sales growth. Conveniently though, GE stock does have some of that too. Analysts expect revenue to grow just 1.2% this year, but a more robust 6.6% in 2018. Additionally, earnings-per-share is expected to grow 9.4% this year to $1.63 and a whopping 16.6% in 2018 to $1.90.
While its energy business has been under pressure, don’t forget that General Electric is planning on combining it with Baker Hughes Incorporated (NYSE:BHI) and spinning it off into its own publicly traded entity. Notably, its nontraditional spin-off went well for its Synchrony Financial (NYSE:SYF) asset.
Still, the point is the same: GE is willing to break off underperforming or low margin businesses to create value for shareholders.
With that said, some of General Electric’s businesses are doing really well. Take Power and Renewable Energy, which had revenue growth of 17% and 22%, respectively. Aviation revenues climbed 9%, while Transportation grew 6%. Those are pretty good numbers and likely to continue higher in the years to come.
How to Trade GE Stock
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A rangebound stock is either a nightmare or a dream come true for investors. Without the dividend, GE stock is basically flat since January 2016. But the fact that shares rarely fall below $29 or rarely exceed $31 gives investors a tradable range.
For those comfortable with options, they could sell downside puts when the stock pulls back. Conversely, investors could sell upside calls when the stock rallies toward the top of its range. Others can buy the stock, collect the dividend each quarter and sell upside calls when GE stock rallies.
These are just some ways for investors to boost their income and up their return on General Electric. For a stock that has gone nowhere fast, this seems like a reasonable alternative.
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Of course GE stock will eventually breakdown or breakout. But until one of those two events occur, this is a viable strategy for this old conglomerate.
In the meantime, the company will continue trying to cut costs and increase the return on its core businesses. General Electric isn’t for everybody. But for the right shareholder, it can be a great addition to their portfolio.
Bret Kenwell is the manager and author of Future Blue Chips. He can be contacted on Twitter via @BretKenwell. As of this writing, Bret Kenwell held no positions in any security mentioned.
