Here’s a headline you don’t hear too often these days: General Electric Company (NYSE:GE) stock is popping. GE stock, which has long been dinged as the Dow’s biggest loser, has had a remarkable start to 2018. It is up 6% in just a few trading days, versus a 3% move higher for both the S&P 500 and Dow Jones Industrial Average.
Has GE stock turned a corner? Is this a case of “new year, new outlook” for GE?
I think so. Here’s why.
It is not just GE. Pretty much all industrial stocks have been in rally mode to start the year.
Part of it is tax reform optimism. Part of it is more bullish expectations for higher infrastructure spend. Another part of it is underlying commodity strength. In sum, what we have right now is synchronized global economic growth. And when the global economy is ticking higher, industrial stocks go higher with it.
GE stock is no exception here. A favorable macro situation won’t fix all of GE’s problems, but it will help accelerate a recovery in the stock. For example, oil prices are rising quickly and have now passed the $60 mark for the first time in more than two years.
A big part of GE’s business is oil, so rising oil prices should create an operational tailwind. This tailwind won’t fix GE, but it will help the numbers.
This is true across the board at GE’s businesses. As end-market demand rises across different businesses, GE’s numbers will get better. That won’t fix GE’s problems, but it will help accelerate the turnaround effort.
All in all, GE, alongside other industrial names, is a good stock to own amid the strengthening global economy.
Valuable Underlying Assets
There isn’t much visibility as to where GE will be in 12 months. But GE has some exceptionally valuable underlying assets.
Its power business is struggling, but it is still a high-moat, hard-to-replicate business that has tremendous long-term value. The aviation business is equally high-moat and hard-to-replicate, and arguably even more valuable because it actually is growing.
The healthcare business is another high-moat and hard-to-replicate business with enduring value. The list goes on and on.
GE will spin off some of these business over the next several quarters, and what GE will look like in 12 months is largely a mystery. But it is hard to imagine that a company with so many valuable assets continues to go belly-up.
A not-that-unlikely outcome for GE is that the company spins off all its businesses aside from the aviation business, at which point GE turns into a Boeing Co (NYSE:BA). Go look at a Boeing stock chart. That company isn’t doing too bad for itself.
Perhaps the most convincing reason to buy GE at these levels is the huge insider buying.
When GE dipped below the all-important $20-level (a place the stock hadn’t ventured since 2012), insiders started buying. In bulk.
Four insiders have together purchased nearly $56 million worth of GE stock while it has languished under $20. And those insiders may be some of the most knowledge people in this sector.
That is a smart group. To seem them buying in bulk is a pretty bullish indicator.
Bottom Line on GE Stock
The turnaround may take some time to materialize, but with the global economy strengthening, insiders buying in bulk, and the dividend cut behind us, this certainly feels like a bottom in GE stock.
The best move is buy GE here and wait. This is a long-term turnaround play that could yield handsome profits to patient investors.
As of this writing, Luke Lango was long GE and QCOM.