3 Reasons I’m Still Avoiding General Electric Company (GE) Stock

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As an investor, there are definitely things to like about General Electric Company (NYSE:GE). For instance, the 3.2% GE dividend yield is both generous and reliable, the company is in the process of combining its petroleum operations with major oilfield services company Baker Hughes Incorporated (NYSE:BHI), and it’s an increasingly diversified, multinational conglomerate. But none of that has made much of a difference for GE stock.

GE Stock: 3 Reasons I'm Still Avoiding General Electric Company (GE) Stock

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GE is down more than 5% year to date, and hasn’t budged in 18 months — it was trading at $29 in October 2015, same as it is now. There have been plenty of peaks and valleys along the way, though the stock has never risen higher than $32. And it’s trending in the wrong direction, having scarcely traded above its 50-day moving average since January.

Despite all the positives about the company I listed earlier, frankly, I don’t foresee a turnaround in General Electric stock anytime soon. Here are three reasons why:

1. GE Stock Lacks a Wow Factor

GE probably reached peak popularity on Wall Street around the turn of the century, when the stock price was roughly double what it is today.

While the company has continued to grow and diversify since, it has been surpassed by younger, more exciting opportunities like Amazon.com, Inc. (NASDAQ:AMZN), Tesla Inc (NASDAQ:TSLA), Facebook Inc (NASDAQ:FB) and Netflix, Inc. (NASDAQ:NFLX). In many investors’ minds, General Electric is yesterday’s news — which is why institutional ownership has fallen from 71% to 56% since the beginning of 2016.

2. The Baker Hughes Acquisition Won’t Move the Needle Much

Let’s start with what exactly Baker Hughes gives GE. It specializes in products and services for hydraulic fracturing (a.k.a. “fracking”) and horizontal drilling for extracting oil and natural gas from shale rock. Before now, GE’s Oil & Gas division has specialized primarily in making oil drilling equipment. The combination of the two will allow GE to supply its own equipment to drill for oil and gas in places like the Bakken, and produce it.

The companies estimate that their new oil and gas partnership will add 4 cents per share to GE stock’s bottom line by 2018 (the deal won’t become final until the middle of this year) and 8 cents by 2020. For perspective, that’s 2.7% and 5.4%, respectively, of this year’s earnings-per-share estimates.

That’s not small potatoes, but it’s not a complete game-changer for a company that also has its hand in electricity, aviation, healthcare, transportation and life sciences. Now, if oil prices break free of their $40-to-$50 malaise now that OPEC is considering extending its production cuts, then the above estimates might be conservative and the Baker Hughes deal might be more of a difference maker.

It should be noted that Baker Hughes isn’t the first acquisition for GE’s Oil & Gas division in recent memory. Since 2007, General Electric has shelled out more than $14 billion in buyouts trying to build up its oil and gas division. During that time, GE stock has declined.

3. GE Isn’t Growing

This one’s pretty simple: GE’s sales and earnings declined last quarter, and are expected to decline in each of the first two quarters this year.

While analysts project full-year earnings to improve 9% and sales to tick up 1.6%, the first half of the year is enough to stay away from GE stock now — at least until it starts showing signs of sustained momentum.

Bottom Line

General Electric stock isn’t dead. The company is big enough and diversified enough to strike gold in one area of its business, which could re-stimulate growth. Plus, GE remains a favorite among income investors.

But with the market trending upward since the election, it’s hard to get too revved up about a stock that has been stuck in the mud for 18 months. There are simply better, more exciting opportunities out there than GE stock right now.

As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/general-electric-company-ge-stock-ge-dividend/.

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