After the results of the 2016 election, there seems to be two types of stocks: Those that are predicted to do well under a Donald Trump administration, and those that are not. Luckily for investors of General Electric Company (NYSE:GE), the industry giant falls in the former category. With a slogan like “Make America Great Again,” there was absolutely no way that General Electric stock could fall by the wayside.
The numbers are irrefutable. On the close of Election Day, GE stock was down 5.5% for the year. By the end of the week, GE had gained 4.1%, down only 1.4% for the year.
More importantly, the company managed to reverse ugly losses in the markets that coincidentally began around the time when Hillary Clinton accepted the Democratic party’s nomination for President. Between July 19 and Nov. 3, GE stock lost a staggering 14%.
Is this simply the result of a political shift in power? While it sounds like a gross oversimplification of the complex financial markets, the bifurcation is hard to ignore.
“America First” Policy Is Boosting General Electric Stock
In the aftermath of Trump’s upset victory, the “usual suspects” saw a tremendous lift. Along with General Electric stock, Caterpillar Inc. (NYSE:CAT) experienced a surge of bullishness, gaping up nearly 8%. That’s hardly surprising, given the nationalistic fervor with which Trump ran his campaign. The call to fight for the working class resonated strongly in key battleground states, handing the real estate mogul the keys to the White House.
In sharp contrast, we see the rise and fall of the exchange-traded fund iShares FTSE/Xinhua China 25 Index (ETF) (NYSEARCA:FXI). Unlike the American icon GE, Chinese stocks burst open after the conclusion of the Democratic National Convention. Between the end of July and the beginning of October, the FXI shot up 7%. For the month of November, the China ETF is down 3%.
Although Republicans may argue the point, part of the recent success for General Electric stock hinges on the aura of economic protectionism. Donald Trump is the only candidate in modern American history to aggressively call out large swathes of nation states.
Thus, it’s hardly shocking that November has been a pretty rough month for America’s top trading partners. The iShares MSCI Germany Index Fund (ETF) (NYSEARCA:EWG) is down 1%, while the iShares MSCI Japan ETF (NYSEARCA:EWJ) is off 2%.
GE Stock Is Full of Wide-Reaching Potential
Ultimately, the protectionist tailwind should be useful for a nearer-term burst for GE stock. However, we live in a globalized economy. When Americans want to buy their junk, they go to Wal-Mart Stores, Inc. (NYSE:WMT) locations expecting cheap prices. Setting off an international trading war would be politically unpalatable and wouldn’t necessarily help General Electric stock.
In the long run, it’s not so much about the new administration’s patriotic fervor. Rather, GE stock has a tremendously diverse portfolio, most of which should see envy-inducing growth rates.
A prime example is energy. Purchasing General Electric stock necessarily exposes you to the company’s considerable energy infrastructure, which ranges from fossil fuels to nuclear power. Under any other circumstance, that wouldn’t necessarily be a marketing point. However, with Trump’s promise to make America energy independent, that bodes well for oil titans like Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM). In turn, that’s a net positive for GE stock.
As the company’s recent commercials have demonstrated, GE stock also gets you into the aviation and transportation business. Again, if we were having this discussion last year, you wouldn’t pick up shares based on these sectors alone. But this November, aviation companies have shown lively trading. In addition, the Dow Jones Transportation Average is up nearly 10% this month.
The newfound optimism in the formerly troubled transportation sector should provide a long-term tailwind for General Electric stock.
GE Is What You Make of It
Of course, no company is without faults. For GE stock, one can make the argument that it’s overpriced in terms of its earnings performance.
It’s also unavoidable that this company is no spring chicken. There are concerns about buying General Electric stock at the current market price, especially if the upside is limited.
It all depends on how you want to approach it. GE is way too big of a company to provide truly exceptional capital returns.
General Electric stock has never had a triple-digit year, and the one time it got close was in 1982, when it gained 70%. So if you’re looking for mining stock performance — and all the associated risks — you’ll want to look elsewhere.
But as a steady hand in a retirement portfolio, GE stock fits the bill nicely. After a trouble-filled 2000s decade — where GE only had four years in the black — the company has really gotten its act together.
Inclusive of this year, General Electric stock averages 15% returns — not too shabby for a 124-year-old company. Armed with unforeseen but favorable tailwinds, investors can more often than not expect the industry giant to deliver the goods.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.