InvestorPlace’s Chris Fraley recently concluded that General Electric Company (NYSE:GE) CEO John Flannery could see a bit of a turnaround in GE stock in the coming months.
Fraley pointed to the sale of its lighting business, a division that saw a 35% reduction in Q2 2017 sales as one reason for optimism. If that’s not enough, he reminded investors that GE is expected to deliver a second consecutive year of revenue and profit gains.
To heck with motivational speeches, investors want to see results. If General Electric continues to produce positive results, its share price will take care of itself.
That’s a big if.
Former CEO Jeff Immelt made a large bet that oil prices are on their way back merging GE’s oil and gas business with Baker Hughes to create a business with $23 billion in annual revenue and 70,000 employees worldwide.
However, the new Baker Hughes A GE Co (NYSE:BHGE) won’t be nearly as successful if oil prices don’t hit $60 by 2019. As of Aug. 9, they were around $48.59 per barrel, 20% lower than the company’s projections.
As a result, BHGE stock is down 15% since opening for trading July 5 at $40.80. If oil drops any further, investors can expect a massive rush for the exits.
What About General Electric?
If the FAAMG stocks have taught us just one thing, it’s that a rising market doesn’t necessarily lift all stocks. General Electric has found this out the hard way; it’s down 20% year-to-date, compared to a 9% gain for the S&P 500 Index, approximately one-third from those five stocks alone.
But forget about this amazing stat for a moment and consider the price of GE stock.
Over the past ten years, GE has traded in a relatively tight range between $15 and $30. Except for 19 weeks in late 2016 and early 2017 and ten months between August 2007 and June 2008, when it traded above $30, it has traded below $30 all the way down to $7 in March 2009.
It has spent the better part of the last five years trading in the $20s. Sure, there have been sporadic bursts above $30 in both 2016 and 2017, but for the most part, it has stayed in place while the S&P 500 lapped it.
Bottom Line on GE Stock
In my most recent article about the company in July, I suggested that Flannery is going to have a heck of a time producing above-average stock performance given most experts don’t see equities doing nearly as well in the next few years as they had done since the beginning of the bull market in March 2009.
Unless oil prices trade above $55 for an extended period, I see GE stock trading in the $20s for the foreseeable future. And if oil prices drop further, I expect its stock to move into the high teens.
I wouldn’t own GE stock, but that doesn’t mean you shouldn’t. Just be prepared to be a really patient investor suggests RBC Capital Markets managing director Deane Dray.
“The company is still in transition and this was going to be a three-year transition,” said Dray recently. “We’re in year two, and 2018 was the first expectation to get to normalized earnings post-GE Capital and other divestitures.”
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.