Despite a major upgrade of General Electric (NYSE: GE) stock by UBS last week and the apparent Phase I trade deal between the U.S. and china, GE stock actually fell on Monday. Moreover, the price is now down about 3% since UBS’ upgrade was unveiled on Thursday morning.
I believe the weakness of GE has created a great buying opportunity, as the company continues to add multiple, strong catalysts.
Moreover, the likely cause of the current weakness of General Electric stock will, in all likelihood, disappear in the first quarter of 2020. Further, it appears that the Street is no longer worried about the company undergoing bankruptcy or insolvency.
New Catalysts for GE Stock
On Dec. 1, GE announced that it had launched “more than 30 new, imaging intelligent applications and smart devices” for radiology departments. According to the company, “the new offerings help systems to save costs, improve technology utilization, and increase patient volumes.”
One of the company’s innovative products is an app for MRIs that the company says produces sharper images and enables scans to be done more quickly. Also introduced were artificial intelligence algorithms for X-rays that the company says saves time by, “simultaneously auto-rotating images as well as analyzing and flagging protocol and field of view errors.”
Of course, radiologists make a great deal of money, so saving them time will help hospitals’ budgets. These innovations are likely to make GE’s healthcare products more popular.
The China deal is also meaningfully positive for GE and General Electric stock. As I pointed out in a prior column, in June Bloomberg reported that ” a consortium led by GE and China’s Power Construction Corp. had won a $4 billion deal to build a hydropower plant on the border of the African nations of Zimbabwe and Zambia.”
In November, GE signed a deal to provide 715 megawatts of its offshore wind turbines to China. That’s a lot of turbines. With the trade war between the U.S. and Beijing evolving into a trade truce, GE is poised to win many more huge deals from China and Chinese companies.
Given the tremendous size and growth of the Chinese economy, General Electric is poised to benefit meaningfully from the easing trade tensions.
Finally, UBS analyst Markus Mittermaier, who upgraded GE stock to “buy” from “neutral” last week, is bullish on the longer-term outlook of the company’s strong aviation business. That shouldn’t be surprising, since the company won $55 billion of new orders at the Paris Air Show last June.
But it might be a revelation for JPMorgan analyst Stephen Tusa, the most famous of the GE bears, who called the $55 billion of new orders “a smokescreen.”
What is likely surprising for most GE stock bulls and bears alike, though, is that UBS’ Mittermaier expects the cash flow of GE’s Power unit to steadily improve in coming years. I’ve been pointing out the proverbial green shoots and the positive catalysts of Power for many months.
What’s Causing the Recent Weakness?
GE has probably been weak in recent days because of reports that Boeing (NYSE:BA) will halt production of its troubled 787 MAX plane. GE’s aviation unit makes the plane’s engines.
The reports come after the U.S. Federal Aviation Administration said that it would not allow the plane to fly this year. But the FAA did not say that it would permanently ground the plane. Meanwhile, Southwest (NYSE:LUV), a prominent U.S. airline, still apparently expects to be flying the planes in April.
Therefore, it still appears that the return of the MAX is a matter of “when, not if.” So GE’s revenue from the MAX will simply be pushed back several months. Finally, GE’s Q3 results were very well-received and resulted in a rally of GE stock price, even though the MAX was grounded in Q3. The same phenomenon is likely to repeat when the company reports its Q4 results next month.
Bankruptcy/Insolvency and GE Stock
More than any other analyst I can remember in the last couple of years, Mittermaier really was extremely bullish on GE , saying that the company’s cash flows will rise, while investors will start seeing its transformation as “successful.”
That’s the first time I’ve heard an analyst sound so upbeat on the company’s financial outlook. I seriously doubt whether an analyst at a bank as reputable as UBS would make such a statement unless he or she was absolutely sure about the company’s financial health.
Meanwhile, the days of multiple analysts and pundits and Harry Markopolos (I’m not sure exactly what category to put Markopolos in…maybe hired gun?) issuing dire warnings about GE going belly up seem to have ended.
Combined with UBS’ optimism, the absence of these “sky-is-falling” warnings on GE stock should encourage many more investors to buy the shares going forward.
The Bottom Line on GE Stock
GE stock will bounce back from the MAX’s latest delay. The shares have multiple, strong catalysts, and Wall Street’s increasing optimism towards the name will definitely help boost the shares in the longer run. Now is a good time to buy General Electric stock on weakness.
As of this writing, Larry Ramer owned shares of GE stock.
