General Electric (NYSE:GE) shareholders have so far had a good year in 2019. Year-to-date, GE stock is up over 38%. Most of the yearly gains came in the first two months of the year.
Between March and late June, GE stock has been trading in a range. Therefore investors are wondering whether the bulls or the bears will have the upper hand in Q3.
Let us take a look at what may be in store for General Electric stock in the coming months.
GE’s Q1 Earnings Offered Reason For Hope
On April 30, General Electric reported Q1 2019 earnings, when the group beat earnings and revenue forecasts on orders up 9%. EPS came at 14 cents vs. expected 9 cents a share.
At present, the company reports revenue in six business segments: Power, Renewable Energy, Aviation, Oil and Gas, Healthcare, and Capital.
General Electric’s Aviation, Oil & Gas, and Healthcare businesses delivered steady revenue and earnings growth.
GE Aviation business primarily builds and services aircraft engines. Earlier in June, Wall Street welcomed the news that the conglomerate signed lucrative contracts at the Paris Air Show.
The Oil & Gas Division, which is a cyclical business, has now returned to profitability.
In Healthcare, GE has robust exposure to the hospital and lab equipment market. Several analysts see the possibility of an IPO for Healthcare.
Within a few quarters, the company is aiming to have a much smaller GE Capital operation. The unit reduced its liabilities as it completed $1.1 billion in asset reductions in the quarter.
GE’s industrial free cash flow is a key metric for many analysts and shareholders. For the quarter, it showed a loss of $1.2 billion. Shareholders cheered that General Electric in general, but especially the Power segment, burned less cash than feared.
2019 Is A “Reset Year” for GE Stock
In March, CEO Larry Culp called 2019 a “reset year” and urged patience during what has been portrayed as a multiyear turnaround. Following a rotation of CEOs, Culp took over from John Flannery in October. And has had a busy nine months so far.
Under new leadership, General Electric has been taking several strategic steps to slim the group down to a few core units and raise cash by divesting from several businesses that no longer serve the group.
These moves to clean up the balance sheet include the recent sales of the biopharma segment of the company’s healthcare operation to Danaher (NYSE:DHR) for $21 billion and the merger of its transportation business with Wabtec (NYSE:WAB).
It has recently been reported that management would also like to sell GE Ventures, a diverse collection of over 100 startup companies.
In other words through asset sales and spinoffs, GE is aiming to generate enough cash to reduce its $121 billion debt load and become more manageable. Overall, Wall Street approves these strategic moves that Mr. Culp has been taking.
Where is GE Stock Price Now?
Many long-term shareholders know that General Electric stock price is a shadow of its former self. Let us go a bit back in history…
In August 2000, GE stock hit an all-time high of $60.75. In October 2007, it was hovering around $40. By March 2009, at the heights of the great recession, General Electric’s risky balance had sheet pushed the shares down to $5.73.
In 2016, GE stock saw a decade-high of $33. But troubles for the General Electric share price began once again with 2017. Losses in the GE Capital unit and plummeting sales and profitability in General Electric’s Power business put pressure on the stock.
The market decline of 2018 pushed the shares once again to the single digits and in December of last year, the price saw a decade-low of $6.66.
As of this writing, GE stock is hovering around $10.3.
So Should Long-Term Investors Buy GE Stock?
After years of continuous price volatility and decline, it is still proving hard for GE stock to regain investor trust for the long-term.
If you follow technical analysis, the long-term GE stock chart has been improving. In other words, bears are not in control of GE stock price at this point as the worst has likely already been priced into General Electric stock.
From a longer-term technical analysis perspective, I’d expect the stock to move up another 15-20% from the current levels within a year. Shorter-term, the stock will possibly continue to trade in a range, hovering around $10.
Investors who do not yet have a position may want to wait until GE’s earnings report in late July to have a better view on the developments within individual segments. Analysts will pay special attention to the sales figures in different units as well as the level of free cash flow.
Those investors who already own GE shares, may either consider taking some money off the table or hedging their positions. As for hedging strategies, covered calls or put spreads with July 19 expiry could be appropriate as straight put purchases are likely to be expensive due to heightened volatility. Then, you may reevaluate your long position after General Electric reports earnings.
The Bottom Line on GE Stock
Over the past few months, the narrative for General Electric stock has changed for the better. I believe that many long-term investors are ready to give GE management, which has started dealing with the pressing issues, the benefit of the doubt. Therefore, I’d see any dip in the stock price an opportunity to go long.
The author has GE covered calls (June 28 expiry).