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Progress on One Key Metric Should Power a 21% GE Stock Rally to $14

Around this time last year, there were serious concerns about General Electric (NYSE:GE) stock. Shares were flirting with a single-digit stock-price breakdown, as GE stock eventually bottomed just above $6. Then-new CEO Larry Culp didn’t get much of a honeymoon.

Progress on One Key Metric Should Power a 21% GE Stock Rally to $14
Source: testing / Shutterstock.com

Since then, shares have almost doubled to current prices, near $11 per share. While the fundamentals are still a bit sketchy, it’s got many investors wondering if the worst is now behind General Electric stock.

A Clash of Analysts

While they’re not rivaling with each other, two analysts have very different views on GE stock. First, there’s JPMorgan’s Stephen Tusa. He was the first analyst to turn bearish on General Electric and was consistently ahead of each decline in the stock price.

Ironically, he upgraded the stock from sell to neutral in December 2018, which kickstarted the stock’s massive rally off the lows. After earnings and investor day presentations though, Tusa later downgraded GE back down to a sell rating in 2019. He also maintains a $5 price target and is still not bullish.

On the flip side, there’s UBS, which recently upgraded the stock from neutral to buy and raised its price target from $11.50 to a Street-high $14.

A new UBS analyst, Markus Mittermaier, took over coverage of GE and proceeded to give the industrial giant a buy rating last week in his first note to clients.

GE stock is at a “positive inflection point,” he wrote, arguing that strong earnings growth estimates for 2020 and 2021, robust free cash flow growth and de-levering its balance sheet should all contribute to a higher stock price.

I won’t pretend to know more than these two in regards to GE stock. General Electric clearly has some issues to work through yet. It’s really a question of whether management can execute the current turnaround plan, whether investors believe in that plan and if the stock market can hold up.

Let’s look at the charts to see what the technicals say.

Trading GE Stock

Shares of GE were trying to breakout over the $10.50 to $10.75 area for much of 2019. Ultimately, the stock did breakout over this level in November, but not before suffering a major breakdown first.

Click to Enlarge
chart of GE stock
Source: Chart courtesy of StockCharts.com

GE stock price was again rejected from resistance in August. In a matter of days, the stock broke below all of its major moving averages, as well as uptrend support (blue line). Eventually, shares bottomed at $7.64 in mid-August — quite the two-week decline, I might add — and began to put in a series of higher lows from that point.

Since breaking out though, the stock is trading much better on the long side. General Electric stock does have a short-term downtrend line weighing on it, while $11.50 has been acting as resistance.

On the plus side, the $10.50 the $10.75 area that was previous resistance is now acting as support. For now, active bulls can look for support in this area while looking to sell near $11.50. On a break below support, see if either the 50-day or the 200-day moving averages act as support.

It’s totally possible that UBS’ $14 price target is achieved even if support fails. But it will be much easier on the bulls if support holds and the stock takes out $11.50 resistance, rallying to $12-plus going into or in early 2020.

Bottom Line on General Electric Stock

Could 2019 be the bottoming year for General Electric stock? Analysts expect earnings to fall 6.2% this year and sales to decline 22.8%. However, 2020 forecasts call for earnings to grow almost 10% despite a slight decline in revenue.

The real kicker here is free cash flow. If the company can show a notable improvement in this metric, investors — and perhaps more importantly, Tusa — will turn more bullish.

That said, GE is very much a “prove it” story at this point. After seeing a 78% haircut in just 30 months and axing its dividend down to nothing, this old conglomerate has to prove its worth. Particularly as Boeing (NYSE:BA) continues to struggle — one of GE Aviation’s customers — and as competitors like Honeywell (NYSE:HON) and United Technologies (NYSE:UTX) continue to march higher and higher.

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.

Article printed from InvestorPlace Media, https://investorplace.com/2019/12/ge-stock-should-be-able-to-rally-14/.

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