Shares of troubled industrial conglomerate General Electric (NYSE:GE) sank to a ominous low of $6.66 on Dec. 11. Interestingly enough, that was the level at which GE stock bottomed during the financial crisis of 2008, while 666 was the level at which the S&P 500 bottomed then, too.
Maybe there is something to the Devil’s number after all. In the near month of trading since hitting $6.66, GE stock has risen 30%, marking its best one month stretch over the past five years. The stock is also coming off of six straight days of gains, with three of those days having 3%-plus moves and two of them having 6%-plus moves.
That is some seriously bullish price action which is strongly indicative of a bottom. Meanwhile, the fundamentals have improved as the company is taking aggressive and constructive steps towards “leaning up” operations. GE is reportedly spinning off its healthcare business via an IPO, and is nearing a deal to sell its jet leasing business to Apollo Global Management (NYSE:APO).
These improvements have led to a flurry of bullish analyst calls and upgrades. UBS reiterated its Buy rating on GE in early December. Then, the longtime bearish analyst team at JPMorgan upgraded to Hold. That was followed by two similar Sell to Hold upgrades from CFRA and Vertical Research.
Overall, there’s plenty of reason to believe GE finally has bottomed. While there’s still no rush to buy big into GE (this hole will take a long time to climb out of), there is reason to become constructive on the stock at current levels. As such, nibbles on near term pullbacks seem warranted.
The Tide Appears to Have Turned
For several quarters, GE was a falling knife with no bottom in sight. Bulls thought $20 was a bottom. It wasn’t. They then thought $10 was a bottom. It wasn’t.
Now, though, technicals, fundamentals, and sentiment imply that GE stock did put in a bottom at $6.66.
From a technical standpoint, $6.66 was the long term level of support that held the stock back in 2009. Unlike other support levels which the stock broke through over the past several years, this line of support held.
More important, it held twice; once on Dec. 11 and once on Dec. 12 which was significant of a double bottom confirmation which normally means the worst of the sell-off is indeed over.
Also, the bounce back has been strong. As soon as GE stock touched $6.66 the second time, it bounced back swiftly. Within a day, the stock was up more than 10%. Within a week, it was up nearly 20%. Broadly speaking, not only did the 2009 low hold, but it held emphatically, too.
From a fundamental standpoint, the biggest drags on GE stock were its debt-burdened balance sheet, its convoluted operations, and lack of consistent profitability across operating segments. Those three drags are improving in the New Year.
The company is finally spinning off big businesses, and in so doing, is slimming up the operating profile and cleaning up the balance sheet. So long as these successful spin offs continue and leverage and operational complexity go down, GE gradually will rise.
From a sentiment standpoint, you finally have Wall Street saying a bottom is in. For a long time, even at levels below $10, it felt like there was a still a new analyst every week calling for GE stock to go lower. That negative analyst sentiment obviously impacted investor sentiment, and GE dropped.
But, all those downgrades have now disappeared and been replaced by upgrades. If the fundamentals keep improving through asset and business divestitures, and the path forward gains visibility, analysts will keep upgrading the stock. If they do, investor sentiment will continue to improve, too, and that will drive GE stock higher.
Still No Rush to Buy
All in all, it seems like GE stock has successfully bottomed. But, that doesn’t mean there’s any rush to buy into the stock today.
The hole that GE finds itself in today took several years and arguably decades to create. It might not take that long to climb out of it. But, it will take a long time, and unequivocally longer than a month. As such, while GE stock may have bottomed and the long term trend is in the process of reversing course, GE stock’s path higher will be slow and bumpy.
Because of this, there’s no need to buy now, or all at once. Instead, this is simply the time to start dipping toes into the water.
Bottom Line on GE Stock
GE stock has bottomed. In the long run, this stock is now on course to head significantly higher. But, the trip higher will be slow and bumpy. As such, “GE has bottomed” does not mean “time to buy GE in bulk.” Instead, it means “time to take small bites of GE stock.”
As of this writing, Luke Lango was long GE.