If you’re looking for a speculative bet on a well-known company, few names fit that bill more so than General Electric (NYSE:GE). Over the past few years, I have twice been dazzled and disgusted with GE stock. In other words, I’ve had some success with calling shares correctly, but I’ll freely admit to some failures as well.
In my last article about General Electric stock, I gave a fairly comprehensive look at the bull and bear case. Ultimately, I concluded that shares presented a risky but compelling opportunity. With a healthy mix of both tailwinds and headwinds, GE comes down to market sentiment. For the last several months, the trajectory has been mostly flat. Thus, the bad news might be baked in.
But here’s the worrisome part from a technical perspective. GE stock is up 44% year-to-date. However, since late February, shares haven’t moved much. Thus, a very real possibility exists that the bears will punish this pensive price action. We have already witnessed hefty losses in 2017 and 2018. No one would be surprised if the equity dropped further.
That said, General Electric stock is roughly only a third of its January 2017 market value. It’s hard for me to imagine a repeat bout of such intense volatility without some fresh, persuasively bearish news.
As such, I think the bullish argument has some merit, but only if you’re willing to accept the risks. Here are three reasons why GE stock could stage a comeback:
GE Is Under New Management
I realize it’s an overly-covered topic. For almost two decades, General Electric languished under former CEO Jeff Immelt’s leadership. Naturally, GE stock also eroded, but not necessarily in a linear fashion.
And this latter point represents a supporting argument for Immelt. After all, General Electric stock experienced two major shocks: one following the tech bubble and the other following the 2008 financial crisis. Neither event is Immelt’s doing.
That said, the optics ultimately derail the former exec’s case. When Jack Welch gave the keys to Immelt, General Electric was a vibrant, robust organization. Today, it’s a sad shell of its former self.
Nevertheless, part of the American capitalist ethos involves coming back from the ropes. And if anyone can bring back GE stock from the grave, it’s current CEO Larry Culp. During his time at Danaher (NYSE:DHR), Culp turned around a confused, convoluted organization into a lean fiscal machine.
What I didn’t know is that Danaher utilized an operational system called lean manufacturing, which emphasizes “continuous quality improvement and low working capital.” Toyota (NYSE:TM) and other Japanese firms pioneered this process following World War II.
Surely, if war-torn nations can spark a comprehensive recovery, then a resurgent General Electric stock isn’t completely irrational. It will take patience. However, those willing to exercise it might enjoy a profit windfall.
Power Isn’t Dead
Several hours prior to writing this article, I experienced a sudden blackout. Immediately, I blamed Tesla (NASDAQ:TSLA) and the rise of electric vehicles. EVs must get their power from somewhere, and that somewhere is our already-strained electrical grid.
But what does this have to do with GE stock? Simply, the underlying company has two core businesses: aviation and power. Regarding the former unit, most recognize that this is General Electric’s money-maker. While Culp has happily divested several businesses to drum up much-needed cash, he didn’t abandon aviation.
Last fiscal year, this unit rang up $30.6 billion in revenue. Take this away and you start having some serious problems. Fortunately, the overall narrative behind aviation is largely bullish, even considering Boeing’s (NYSE:BA) grounding of their 737 Max jetliners.
But the second-biggest revenue source is power. Last year, it brought in $27.3 billion in sales. That’s great, but according to critics, the world is rapidly shifting toward clean and renewable energy sources.
I agree about the shift, but I disagree with the implication. While we’re headed toward a renewable future, that future won’t come soon. I’ll step out on a limb and say this: even if you’re a young Generation-Z member, the transition won’t happen in your lifetime.
That’s because our entire infrastructure is based on fossil fuels. Actually, this is one of my major criticisms about EVs. The tech is wonderful but if everyone jumped on board, it will cripple our electrical grid.
Plus, fossil fuels are now plentiful and thus, incredibly cheap. Even MIT and the University of Chicago admit that “market forces alone won’t reduce the world’s reliance on fossil fuels for energy.”
Stated differently, fossil fuels are here to stay, and that directly benefits General Electric stock.
GE Stock Has Found a Bottom
Finally, I arrive at my technical argument for General Electric stock: I believe shares have found a bottom.
As I mentioned earlier, the bears will counter my point by emphasizing GE’s flat trajectory. And I won’t dismiss that reasoning. However, in most cases, people don’t trade the markets just to watch a stock move sideways. Eventually, it will move decisively in one direction or another.
I concede that the bullish arguments aren’t that strong to skyrocket GE stock right now. This will require patience and tolerance to turbulence. At the same time, the bearish narrative isn’t convincing enough to drop shares more than they have. Otherwise, we would have seen that decline.
If I haven’t already mentioned it, General Electric is incredibly risky. However, with a proven management team and an under-appreciated business unit, this is a name worth gambling on.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
