As a a neutral observer, I’ll admit to some happiness in seeing General Electric (NYSE:GE) rally in recent months. GE, for all its faults, is one of this country’s great industrial companies. And it’s one of the largest employers in the U.S., employing 70,000 Americans as of the end of 2019.
However, investors can’t allocate capital based on what they hope will happen. And the fact is that General Electric has real challenges.
Overall, that workforce number is one of them. General Electric shed 28% of its employees worldwide in 2019. This is a business that is shrinking itself in part to manage a potentially toxic combination of debt and pension liabilities.
That strategy under new CEO Larry Culp admittedly makes some sense, but that’s the point. Culp is playing the hand he’s dealt, but investors don’t have to do the same.
GE Stock Pulls Back
Admittedly, there’s a potential case for GE stock at the moment. Shares have become cheaper, for one. GE stock has declined for now nine consecutive sessions, dropping 16% over that stretch.
In fact, GE now trades below where it did before fourth-quarter earnings last month — and that report was well-received. Both revenue and earnings topped Wall Street expectations, and the outlook for 2020 looked positive. General Electric is guiding for adjusted earnings per share of 50 cents to 60 cents.
Additionally, free cash flow (FCF) long has been a problem for the company — but GE is making progress. The industrial side of the business drove FCF of $2.3 billion in 2019, and the company is guiding for $2 billion to $4 billion this year. And that’s in a year with some challenges.
Boeing’s (NYSE:BA) grounded 737 MAX is pressuring sales and profits this year for GE Aviation. Furthermore, GE Power is undergoing a multi-year turnaround, but lacks a catalyst.
Meanwhile, recent news doesn’t appear that bad. Culp at a conference last week reiterated the company’s outlook for FCF. A potential ban on airplane engine sales to China grabbed headlines but, as Barron’s noted, should have minimal impact.
Overall, the news is better, and GE stock is cheaper. And that seems like an attractive combination.
Easier Ways to Make Money
It may well be. It wouldn’t surprise me if GE stock found support around $11 and managed to rally again.
But GE, of course, isn’t the only stock selling off in this nervous market. “Buy the dip” opportunities seemingly are everywhere after major market indices fell more than 3% on both Monday and Tuesday.
Many of those opportunities are in quality names. Those include growth stocks that can benefit from megatrends like PayPal Holdings (NASDAQ:PYPL) and Shopify (NYSE:SHOP). China plays unsurprisingly have been discounted, but growth in that country will resume at some point.
Even closer to home, GE’s rival Honeywell (NYSE:HON) has dropped 7% in the last four sessions. That company has an impressive track record of growth, a dividend yield over 2% and exposure to broader growth trends in aviation and even Internet of Things.
Put another way, there simply seem like easier ways to make money in this market. GE’s turnaround can work, but the attractive parts of the business now are down to basically Healthcare and Aviation. Even in Healthcare, one of the more attractive assets — GE Biopharma — is being sold to Culp’s former employer Danaher (NYSE:DHR).
Collectively, yes, GE stock is cheaper. So are a lot of names I’d rather own instead. So I’m rooting for General Electric to succeed in its turnaround, and to get back to growth. But that’s as far as it goes.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
