GE Stock Will Benefit From Multiple Little-Known Catalysts

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General Electric’s (NYSE:GE) Healthcare, Grid, Hydroelectric, and Aviation businesses all have positive catalysts that have been largely overlooked. These drivers are, in all likelihood, not fully reflected in GE stock.

GE Stock Will Benefit From Multiple Little-Known Catalysts

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Towards the end of my previous column on GE, I noted that, during the company’s Q4 earnings conference call, CEO Larry Culp had suggested that the results of the company’s Healthcare business could be lifted as a result of the coronavirus tragedy.

A few days later, on Jan. 29,  Culp was more direct, according to a report by CNBC.  The station quoted him as saying that GE was, “increasing healthcare deliveries to Wuhan Hospital, including patient monitors.”

Culp added that “it’s too early to discern the impact” of these deliveries on the unit’s financial results. But given the extent of the illness’ spread within Wuhan in general and China in particular, there’s a good chance that the effect on GE’s results will be material.

Grid and Hydroelectric

Both units have struggled, and Culp has said that the company is focusing on turning them around. I believe that both of them will rebound strongly since they both have great potential. Culp is a highly skilled manager who has probably selected very talented people to oversee them. Both businesses are part of the company’s Renewables unit.

In a very positive sign for the future of Grid last summer, GE announced that it had won a deal to upgrade equipment for Norway’s electrical transmission system operator.

“With the availability of new technology and plans for full electrification of most public and industrial sectors, the country is making it a priority to upgrade older grid infrastructure as well as develop the country’s mainstream power network to create a modern grid,” the company said when announcing the deal.

In addition to looking to achieve “full electrification,” the country is the leader of the electric car movement, with electric cars accounting for 31% of the country’s auto sales in 2018. The deal with Norway indicates that as many more, larger countries adopt electric cars and electrification on a larger scale, Grid will get many more, lucrative deals.

The unit has also recently won multiple deals in India. That bodes very well for the business’s future, as the country’s economy appears to have returned to rapid growth and its electricity demand could triple by 2040.

Also boding well for Grid’s future is the fact that in December GE announced that it was awarded a contract by Saudi Arabia to develop one of the world’s largest desalination plants. I believe that, as the world’s population grows, such plants increasingly will be relied upon to deliver drinking water.

That’s especially true in the Middle East, but even certain parts of the U.S., like Las Vegas, Arizona and California, will likely have to turn to desalination sooner rather than later.

Hydropower is still the world’s largest source of renewable energy, and it’s reportedly expected to grow 9% in the next four years. As a result, GE’s hydroelectric business should get enough maintenance and construction projects to turn itself around.

Aviation

Culp told CNBC that the unit had a “tremendous” year selling engines to Airbus (OTC:EADSY) in 2019. Aviation could win many more deals with Airbus this year as the European company takes market share from Boeing (NYSE:BA).

Meanwhile, China announced that it would cut tariffs on “some types of aircraft.” Over the longer term, that could bode very well for Boeing and, by extension, GE.

Looking to Sell the Steam Business

GE is reportedly looking to sell its steam business which generates electricity from steam. In my last column, I wrote that steam sounds like an antiquated business. Indeed, I subsequently found out that coal is generally used to generate the steam which then produces electricity.

Coal use is obviously declining in most parts of the world. Consequently, I think GE is making the right decision by looking to unload its steam business.

The report makes me optimistic that the company will also unload its nuclear business. Of course, nuclear power, like coal, being phased out by many countries due to safety concerns and the fact that solar, wind, and gas are often all meaningfully cheaper than nuclear in many places at this point. And GE can likely generate a  few billion dollars of cash from these deals, helping ease its debt burden a bit.

The Bottom Line on GE Stock

GE’s shares continue to have many strong, positive catalysts. Even two of its struggling businesses — Grid and Hydroelectric — look poised to rebound strongly.

Meanwhile,  its two most successful units –Aviation and Healthcare — also have positive drivers going forward. As a result, the shares remain meaningfully undervalued.

As of this writing, the author owned shares of GE stock. 

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.


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