GE Stock Has Had a Good Run, but There’s More Turnaround to Go

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General Electric (NYSE:GE) looks to be in the midst of a legitimate turnaround, and GE stock has had an impressive run and it isn’t alone.

GE Stock Has Had a Good Run, but There's More Turnaround to Go

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Recently, some controversial stocks that bearish traders previously fawned over have been making life very uncomfortable for those wagering from the short side.

There’s Tesla (NASDAQ: TSLA), the polarizing electric vehicle maker led by the polarizing Elon Musk. All that stock has done is return more than 37% over the past month. Alright, so Tesla is a growth stock operating in a disruptive market segment. Still, a 37% pop in a month is impressive.

GE is perhaps more impressive even though the almost 31% past month gain is smaller. Previously, there wasn’t a universe in which General Electric stock would have qualified as growth fare. These days, GE is acting like something far sexier than it really is. However, that doesn’t mean the stock’s run is over.

“So far 2019 has been somewhat typical—in GE terms—of what one would expect to see from the first year of a new external CEO at a troubled conglomerate,” said Barclays analyst Julian Mitchell in a recent note. “However, there are also some clear signs of progress amidst the housecleaning, which will likely cause more long-term investors to start to take a closer look at GE.”

If “typical” is a gain of about 57% in just over 10 months, some investors may be hoping for more conglomerates to get in trouble only to be rescued by outside CEOs like Larry Culp of GE.

GE Stock and the Way Forward

History is just that: history, meaning it’s already been written. However, GE is undergoing a transformation. Actually, it’s undergoing another transition, meaning precedent can be somewhat instructive for investors mulling the shares today.

“A CEO has different tasks in different cycles. Some CEOs are founders and builders. Others have the luxury of managing momentum through a stable economy or a period when business models aren’t being disrupted. My task was different: remaking a historic and iconic company during an extremely volatile time.”

What’s interesting about that quote is that it very well could been said by current GE CEO Larry Culp, but it was actually penned by former CEO Jeff Immelt in a 2017 article for Harvard University.

Immelt’s quote, which is about 25 months old, is relevant today because it highlights the exact scenario Culp is in: remaking an old company against a volatile backdrop for its shares.

While Culp hasn’t won over every analyst, the fact is his tenure coincided with appreciation in General Electric stock. More could be on the way if he opts to remain nimble rather than going on acquisition binges as previous regimes did, something the company pays for today.

“One of these is GE Finance, which started as a captive bank to finance only purchases of industrial products made in house,” according to the University of Chicago. “From there, it grew wildly into all sorts of things and crashed hard in the 2008–09 financial crisis. In some ways, GE Finance was the tail wagging the dog, and unwinding it has proven to be costly for the parent company, as previously-hidden liabilities have emerged as GE shutters this division.”

Bottom Line on GE Stock

When it comes to General Electric stock, some investors believe the company’s power division remains a priority in some form or fashion. One unit standing out like is something to consider for a company that’s as sprawling as GE.

“The GE turnaround story begins with the notoriously fickle and long-cycled power market,” said Morningstar in a note out earlier this month. “A successful multiyear turnaround of the industrial conglomerate won’t be easy.”

The recent run-up in General Electric stock is likely indicative of investors’ faith in Culp navigating the corporate minefield that is GE and some investors focusing on opportunity in the stable, money-making jet engine and healthcare units. However, General Electric stock remains vulnerable to shocks from the power and GE capital businesses.

“GE Capital…remains an overhang on the stock, particularly related to its insurance liabilities, as well as required additional capital contributions from industrial GE. We estimate these contributions amount to a run-rate of just over $2.6 billion from 2020 to 2023, after an additional $2.5 billion contribution in the latter half of 2019,” according to Morningstar.

As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.

Todd Shriber has been an InvestorPlace contributor since 2014.


Article printed from InvestorPlace Media, https://investorplace.com/2019/11/ge-stock-more-turnaround-to-go/.

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