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General Electric: 3 Pros, 3 Cons

Rocked by nuclear headlines, will GE's shares plunge further -- or are they a buy?

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Buy the sell-off. Technically speaking, GE shares now have plunged well below their short-term, 50-day moving average. The stock now trades around $19.30 (as of March 17), and that makes it an attractive “buy the dip” candidate for traders looking to get a bargain on the shares.

GE Stock Chart

GE Stock Cons

The nuclear sell-off. The selling we’ve witnessed in GE shares over the past week has indeed been troubling. It’s scared off many holders of the stock, and for good reason. The crisis could really be a scarlet letter on the sleeve of the company for years to come, and that could continue driving down the value of GE stock. As Susan J. Aluise put it in a recent article, “This could be GE’s Deepwater Horizon,” referring, of course, to the big decline in stocks such as BP plc (NYSE: BP), Transocean (NYSE: RIG) and Halliburton (NYSE: HAL) in the wake of the Gulf oil spill.

Global sell-off fears. If the events in Japan, along with the almost-forgotten conflicts still raging in the Middle East, combine to push the market down further, then you can bet that widely held GE shares are going to spearhead the plunge. The stock is often considered a proxy for the health of the market, and as such, it is susceptible to distaste for stocks by the investing public. In other words, if sellers continue to dominate, GE will continue to struggle.

Technical support is at the 200-day. So far, we’ve seen GE shares tumble below their short-term, 50-day moving average. The next sector of support for the stock is at the long-term, 200-day moving average, which is currently at $16.86. If the stock were to fall to this level, it would mean another 12.7% decline in the shares. That’s not an attractive proposition for traders or investors.

GE Stock Verdict

There’s no doubt that the nuclear crisis in Japan has the potential to keep GE stock down for the short term. However, the nuclear division is only a small part of the company’s business. Certainly, the situation in Japan has rightfully captured center stage, but if you are bullish on the global economic recovery — and I am — then it’s a good bet that GE’s diversified businesses will continue performing well. Despite the current headwinds, I think the verdict here is in favor of the pros.

As of this writing, Jim Woods did not own a position in any of the stocks or funds named here.

Article printed from InvestorPlace Media,

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