General Electric Company (NYSE:GE) stock is gaining traction as we head into the final month of 2016, putting GE stock in position to end the year in the black.
Indeed, General Electric stock is approaching break-even for the year-to-date after a strong upside move in the first-half of November. Heck, GE stock is up nearly 10% since Nov. 3.
In some promising technical developments, General Electric broke resistance at its 50- and 200-day moving averages along the way. True, the Relative Strength Index is getting close to overbought territory, but it’s not there quite yet. At the same time, the MACD suggests momentum remains to the upside.
That said, GE stock has been trading sideways for more than a week’s worth of sessions. Perhaps the market is digesting recent gains before settling on its next move. Either way, General Electric stock hasn’t looked this healthy since the first half of the year.
A strong finish would be a nice reward for investors who’ve stuck by GE through a whirlwind of deep strategic changes. General Electric shed most of its financial assets to become a pure-play industrial, with all the risk that that entails. And still, GE wasn’t done.
Last month, General Electric dealt with the drag of low energy prices by distancing itself from its oil and gas unit. To do this, General Electric will combine its operations with oilfield services giant Baker Hughes Incorporated (NYSE:BHI) and spin the entity off as its own publicly traded company. GE will still have exposure to fickle oil prices, but the brunt of the risk will be borne by shareholders in the new Baker Hughes.
Since the oil and gas business has been responsible for the greatest weakness in GE earnings, this promises to be a smart move. Despite the difficulty of doing business on top of a strong dollar in a world of sluggish economic growth, General Electric has done pretty well outside of oil and gas.
GE’s Bet on Tech
As long as international trade policy doesn’t go off the rails under a new administration, General Electric’s long-term strategy sounds too good to ignore. It’s the most exciting thing the company has done since before the financial crisis — and that goes double for its investments in software and related technology.
Like a number of old-line tech and industrial names, General Electric is eager to make its mark in cloud-based services. The company is pursuing an aggressive attitude toward mergers and acquisitions to help fulfill its goal of becoming a top 10 software company by 2020.
Given the potential for outsized, high-margin growth in such endeavors, this could be a significant profit engine driving GE stock over the next few years.
For now, GE’s lackluster year-to-date returns make the valuation and yield on the dividend reasonably attractive. GE stock trades at 18 times forward earnings. No, that’s not a bargain-basement buy on a compound annual growth forecast of 12%. However, it’s hardly pricey by the standards of the current bull market.
Meanwhile, GE’s dividend yield currently sits at 3%. That’s competitive in today’s low-rate environment. Furthermore, a six-year history of regular dividend increases means GE is due for a payout hike.
On a seasonal basis, General Electric stock tends to struggle in November before roaring back in the final month of the year. Over the course of the last decade GE has delivered an average December price gain of 3.6%, according to data from Thomson Reuters Stock Reports.
Investors, as always, will need to exercise patience as the company continues its transformation and waits out a soft oil and gas market. They can take comfort in the fact that the company’s investments in software, 3D technologies and other next-gen industrial businesses will pay off down the road. And there’s no way GE stock was better off when it was half a bet on the financial sector.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
