General Electric (NYSE:GE) stock has had a stunning fall from grace. Viewed as an American industrial titan for decades, the company has undergone a miraculous deterioration. Three years ago, GE stock was trading north of $30. In December 2018 it was flirting with falling below $6. Now back above $10, GE stock is showing signs of life. Does that make it a buy?
From a fundamental perspective, the answer seems like a resounding “no.” From a technical point of view, though, GE stock is looking much healthier. But just because its charts are pointing to potential gains doesn’t mean its balance sheet issues have been resolved or that its cash flow woes have vanished
The Growling Bear
JPMorgan analyst Stephen Tusa called the demise of GE stock. He was the first analyst to turn bearish on the industrial conglomerate and, for the most part, he’s stuck to his guns. As GE stock fell last year, Tusa was ahead of the ball. He would lower his price target or issue negative reports only to see the stock price get nailed weeks or months later on continued weak fundamentals.
Tusa told investors to stop selling GE stock in December. Well, sort of.
He raised his “sell” rating on General Electric stock to a “hold” rating, but maintained his $6 price target. The shares bottomed near $6.60 and embarked on a violent upside reversal. Investors — or at least momentum traders — used Tusa’s upgrade as an opportunity to squeeze GE stock higher.
I don’t mean to put too much weight on one analyst. But it got to the point that investors were using Tusa’s statements, rather than those of GE’s management, to determine how the company was really doing.
Tusa downgraded GE stock again a few months ago. He now has a “sell” rating and a Street-low $5 price target on General Electric stock. While many of his peers and management are cheering the company’s “conservative” $55 billion of new aviation orders from the Paris Aviation Show, Tusa said the takeaway for GE “was on net more negative than even we were thinking when it comes to the Aviation debate.”
Valuing General Electric Stock
Given the bullish price action of GE stock since December, it’s no wonder Tusa’s bearish stance has drawn some criticism. And that’s where there’s a diversion between GE’s fundamentals and the technicals of GE stock.
Fundamentally, it’s hard to make a case for being long General Electric stock. But as you’ll see in a moment on the charts, the stock continues to get healthier.
Management already told us that the company’s cash flows would be pressured for the rest of this year and be weak next year as well. For a company like GE, that’s not good news. The company has already essentially slashed its dividend down to nothing and has had to part ways with assets at less-than-favorable prices.
Analysts’ expectations for the company aren’t great, either.
Analysts, on average, are calling for earnings of 59 cents per share this year, a near-10% decline from last year’s 65 cents per share. The consensus estimate for 2020 calls for earnings of 74 cents per share. If attained, that represents growth of 25% from 2019. However, it’s still lower than the 76 cents of basic EPS that GE had in 2016.
Its revenue is expected to decline 3.8% this year to about $117 billion and rebound just 1.3% in 2020 to $118.5 billion. But its 2020 top line, like its 2020 bottom line, is expected to be lower in 2020 than it was in 2018. Moreover, in 2016 the company generated revenue of $119.4 billion.
In short, GE has been bleeding like crazy. General Electric stock has been rallying because investors are banking that management can stop the bleeding. If it can’t, Tusa’s price target may pan out. If it can, the shares will probably be able to climb over time.
Compared to a company like Honeywell (NYSE:HON) or a high-dividend stock like 3M Co (NYSE:MMM) though, it’s hard to find GE stock attractive.
Trading GE Stock
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Not long ago, I pointed out that GE stock could rebound. My statement came as the shares were knocking on the door to $10.50, which has been range resistance throughout 2019. The stock broke through and ran to $10.71, but then retreated.
At the time, I said that, if its breakout failed, GE needed to use its major moving averages as its support. GE is now using its 20-day moving average as support. If GE stock stays above the 20-day moving average , a retest of the $10.50 resistance point should be in the cards.
GE still has plenty of support below the 20-day. The now-uptrending 50-day moving average is $9.92, while the 200-day moving average is $9.61. Just above that is prior downtrend resistance (depicted by the blue line). Below all that, GE stock has range support at $9.
The bottom line? See if GE gets another opportunity to break out over $10.50.
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.
