Buy at $9, sell at $10 … rinse, repeat: that’s been a formula for quick and easy profits as General Electric (NYSE:GE) has been trading in a consistent range since the beginning of the year. Lately, however, everybody and his uncle wants to downgrade and underweight General Electric stock, leaving investors in a state of panic an uncertainty.
As for me, I thrive on panic and uncertainty — it’s my bread and butter as a contrarian market player. Sure, there’s a case to be made that GE stock will decline more, but an equally valid argument could be presented in favor of a patient buy-and-hold position in General Electric shares.
Showing “Steady Progress”
Before General Electric released earnings data on July 31, analysts couldn’t have been more pessimistic: they projected adjusted earnings of just 12 cents per share as well as a very moderate $28.68 billion in revenue for the second quarter. The actual Q2 figures revealed a positive surprise, with adjusted earnings coming in at 17 cents per share and revenue just beating expectations at $28.83 billion.
The short-sellers were disappointed, and I’m sure they didn’t want to hear CEO Larry Culp’s optimism as he recapped an outstanding quarter for General Electric:
“We made steady progress on our strategic priorities in the second quarter. Our top-line growth was solid, and Power made meaningful improvements on fixed cost reduction and project execution.”
That same day, Culp affirmed that General Electric’s cash flow is improving and that GE’s Power unit has been showing “signs of stabilization,” exactly the kind of language I like to hear when investing in a turnaround story like General Electric.
Ignore the FUD on GE Stock
It amuses me to see big-bank analysts (who really ought to know better) bashing a perfectly good company and recommending that people unload shares when they’re short-term oversold; that’s precisely the right time to start a long position in the stock, if you ask me. With the GE stock price at a four-month low and near the bottom of the range it’s been in for the entirety of 2019, JPMorgan Chase analyst Stephen Tusa felt the need to give General Electric stock an underweight rating — the complete opposite of how I believe an intelligent investor should approach a blue-chip stock when it’s moderately down.
That’s perfectly fine with me, as analyst FUD (Fear, Uncertainty and Doubt) is not uncommon these days. But get a load of this: Tusa set his price objective for GE stock at $5; no, that’s not a typo. He’s saying that the General Electric stock price will decline 44% within one year after already falling to the bottom of its long-standing range. I don’t know if Tusa is just looking to gain some fame or perhaps notoriety, but I can’t see anything except a bankruptcy filing putting GE shares at $5 within 12 months.
There’s Power in the Numbers
Of all the catalysts to drive General Electric’s comeback, I see the Power unit as the key to the company’s growth through the rest of 2019 and well into next year. As the company has reported, Gas Power orders during the second quarter were up 27%; moreover, GE CFO Jamie Miller made it clear that the company has made “meaningful progress” on the Gas Power unit’s objective of cutting $800 million from fixed costs over the next two years.
Just short of two years on the job, Miller is exiting the CFO’s office, clearly a signal that more big changes are afoot at General Electric. I’m anticipating major retrenchment, which has already begun as GE’s Gas Power division already shed 1,000 employees, nine offices, and two warehouses in H1 2019.
Takeaway on General Electric Stock
I laughed out loud at the $5 price target for GE stock, and calm investors will have the last laugh when General Electric shares work their way back to the top of their price range and eventually break through to new year-to-date highs.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
