Shares of General Electric (NYSE:GE) remain in free-fall. In fact, GE stock is now trading at the same levels as it was in — what!? — January 1996.
What a terrible performer this has become. There are so many other stocks, funds and ETFs that have outperformed GE stock price over the last 22 years. Thinking about the returns of Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) or even just the PowerShares QQQ ETF (NASDAQ:QQQ) over that time period versus that of GE stock could make a stubborn investor nauseous.
But is a change coming? Can GE stock bottom soon?
As of now, the answers are simply no. The charts do not suggest that GE’s situation has improved, and it’s usually not a good sign when a stock is making a 22-year low.
A year ago, GE stock had a 4% dividend yield. But in November, GE’s management team, led by the newly-appointed CEO, John Flannery, cut General Electric’s dividend by 50%. The yield is now back to 4.1%. That tells you all you really need to know about the performance of GE stock, as the shares have now tumbled more than 50% over the past 12 months.
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So what do the charts say? Let’s first look at the one-year daily chart above and use the 10-year weekly chart at the bottom of the illustration for reference.
I have drawn two downtrend lines on the chart above, one in black that begins back in January and another in blue which starts in May. Since the 20-day and 50-day moving averages converge, I know the chart looks quite congested in that $12 to $13 area.
That’s precisely why it’s hard to be bullish on GE stock right now after the false breakout earlier this month. It was holding up well above its prior support near $12.50, but since falling below that level in August, GE stock has had trouble staying afloat. In short, there’s no way to know when or where GE stock price will bottom right now. Now that all its support levels have failed, the shares are simply in no man’s land for the time being.
Eventually GE stock price will get back above its downtrend resistance, as well as its key 20- and 50-day moving averages. Once that happens, investors can start to consider buying the shares. But the way things look right now, there’s simply no reason to dive into General Electric stock unless you’re a long-term investor who’s making the first of multiple purchases.
A glance at the weekly chart of GE stock below shows just how bad the recent slide has been. Perhaps the lows GE stock made earlier this week near $11 will hold up, but unless it’s able to get back above the downtrend resistance marks shown on the first chart, General Electric stock will continue to fall. I’d love to see a big drop on bad news, followed by a reversal to positive territory and a continuation higher for a few days.
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Valuing General Electric Stock
There are continued worries about the company’s free-cash flow, its ability to pay its dividend and whether its turnaround has begun. Recent issues with General Electric’s turbine business derailed the stock’s potential breakout and are a key factor in its recent underperformance.
The turbine issue isn’t the nail in the coffin, but it is another disappointment. Until GE can turn around its businesses and improve its cash flow, worries about the company’s outlook will likely linger.
Last quarter, GE reported $238 million of GAAP operating cash flow, a 93% decline from the same period a year earlier. Free cash flow tumbled 89% year-over-year, coming in at just $40 million. However, the plus side is that General Electric’s $1.65 billion free cash outflow through the first six months of 2018 is better than the $2.38 billion outflow it had in the first half of 2017.
While that’s better, it’s not good. Improving earnings results, a flush-and-rebound in GE stock, and a confident management statement and conference call would go a long way towards repairing the charts and GE stock. But that hasn’t happened, and it’s not yet time to buy GE stock.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
