Once an iconic industrial giant, few companies have suffered as ignominious a loss as General Electric (NYSE:GE). In fact, the GE stock price peaked in the 2000s era dot-com bubble, never threatening to regain its former glory. But with shares turning in a tremendous performance in 2019, can this beleaguered organization do the impossible and recover?
Obviously, I can appreciate the healthy skepticism that abounds with this name. Not only did GE stock peak roughly 20 years ago, it plummeted following a sizable rally leading up to the 2008 financial crisis. Shares again crashed in 2017 after the company’s fiscal situation became untenable.
Plus, there’s the adage: if shares are cheap, there’s usually a reason for it. With GE stock, you’re taking a big risk that management can pull off a perhaps unprecedented recovery.
To be fair, the business leader that has the potential to do this is current CEO Larry Culp. An executive with a long history of accomplishments, he grew the market capitalization of his previous employer Danaher (NYSE:DHR) to $50 billion from $9.7 billion during his 14-year tenure.
That said, Culp transformed a solid company to a great one in Danaher. But with General Electric, the wall that he must climb is in a different dimension. To draw a comparison, GE stock is the Chesapeake Energy (NYSE:CHK) of the industrial sector in that excellent leadership is not enough: GE requires other factors to shift favorably to see the recovery through.
Can it happen? It’s not an opportunity for risk-averse investors. However, if you want to take a small, measured gamble, here are three elements to consider:
GE Stock May Enjoy a Geopolitical Tailwind
General Electric’s long-term stakeholders are undoubtedly familiar with the saying, “when it rains, it pours.” That was evident when Boeing (NYSE:BA) suffered a serious crisis with its 737 Max 8 jetliner. Due to a faulty stabilization mechanism, government agencies throughout the world grounded the plane until Boeing got their act together.
As luck would have it, General Electric is the manufacturer of the Max 8’s engine. Moreover, the company’s aviation division was one of the few bright spots. Without it, the nearly impossible becomes simply the impossible. Naturally, then, investors avoided GE stock like the plague.
However, the 737 Max 8 crisis won’t last forever. Once Boeing earns back its customers’ trust, General Electric can then get back to business.
Also, GE’s fortune may have finally turned regarding outside tailwinds. Presently, the headlines are not focused on Boeing, but rather, tensions between the U.S. and Iran. With the possibility that the conflict could eventually turn hot, GE’s military aviation unit may enjoy a sizable lift.
Power Is Still Relevant
One of the conspicuous societal shifts that we’ve witnessed over the years is environmentalism. Concerns about sustainability have dominated the headlines last year. And one of the forwarded solutions is to promote clean energy initiatives.
Last month, the Los Angeles Department of Water and Power announced their intention to convert one of their power plants to 100% hydrogen by 2045. To do this, the utility firm will integrate a variety of renewable energy platforms to produce hydrogen via electrolysis. Currently, technological barriers prevent meeting the 100% hydrogen goal earlier.
But according to Harvard researchers Lee M. Miller and David Keith, that might not come to fruition. Based on their analysis, the U.S. is grossly underestimating the land requirements for going fully green. As an example, if the entire country were to be powered via renewable energy sources, “it could require one-third of the country be covered by renewable solar and wind energy facilities.”
In other words, General Electric’s power unit is still relevant. It’s just taking some time for influential people and organizations to realize this.
Technicals Are Compelling
We all know that GE stock is cheap. And as I mentioned above, such discounts exist for typically unpleasant reasons.
However, the opposite angle is that shares have jumped substantially from its late 2018 lows. While hiccups have presented themselves along the way, the equity has marched steadily higher. Thus, there’s a reason for that too.
At time of writing, GE stock is trading just under $12. That places shares at the support line just prior to its October 2018 crash. To put it another way, GE is at a crossroads.
For conservative investors, it’s safer to assume that shares have again hit a peak. Culp can work wonders but General Electric requires a miracle. But for speculators, there might be enough momentum (at least in the nearer term) to spark a significant lift.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
