The recovery efforts for General Electric (NYSE:GE) have suffered a tremendous blow from this crisis. Shares fell 60% and only recovered a small portion of that so far. This is disappointing for the bulls but the comeback story of 2020 is perhaps merely delayed. If management stays focused like it was in 2019, then GE stock should make the turn eventually. Patience is a required ingredient for success here.
This is a controversial stock so the opinions on it have been split over the last few years. High profile analysts comment and GE stock — and the fans — throw a fit. Candidly, most often if the comments are based on charts, they carry more truths than not. The most controversial ones usually come from JPMorgan analyst Steven Tusa who has called it at $5 per share. At its lows two weeks ago, it fell to $5.50 per share so his call wasn’t so crazy after all.
It is best to leave emotions out of the investing decisions. General Electric is a great American company that has fallen from grace. The stock is definitely broken and now Wall Street waits to find out if management can repair it.
The environment that the world is in cannot be less conducive for success. GE is struggling to recoup part of its prior glory so it needs all the help it can get. The novel coronavirus is the exact opposite of that because the world went out of work for months. Consequently the macroeconomic environment almost went to zero.
On its Heels but Don’t Count it Out
Regardless of how strong the recovery thesis was coming into 2020, GE stock is now back on its heels.
Last year I wrote about the possibility of a great comeback story this year, but we did know about an impending virus crisis to cripple the world. That bullish thesis has lost its mojo for now and onus is on the bulls to recapture it.
In 2019 the experts agreed that management finally had the right team in place and that they were on the right track. They were streamlining operations and shoring up the balance sheet. This gave investors hope that it was only a matter of time before success follows. Unfortunately those hopes are dashed for now and the momentum rebuilding process starts anew.
The fundamental metrics for GE stock are reasonable. It has a price-to-earnings ratio of 9.7 which is not bloated. So there is not a lot of froth to shed into another downturn. This is important because the macroeconomic setup is still horrendous. As the world reopens its doors for business, the progress will be slow. The likelihood of another dip in the stock markets is high. GE stock will follow that down if and when it happens. But the good news is that it has less to fall than say a momentum stock like Shopify (NYSE:SHOP) or Nvidia (NASDAQ:NVDA) to mention two stocks that can do no wrong now.
Charts Suggest Help from Last Financial Crisis
The charts offer help when it comes to trading GE stock. I have had success in the past relying on the technicals to forecast the short-term price action. Therein lies some hope for the bulls because it is trying to base near the December 2018 crash bottom.
The first step is to stop making lower lows and that looks like it could be starting at least from last week’s price action. Still the sellers are in charge of the stock for now.
In my last write up I mentioned that it “was stuck in muck.” Now it is below those levels so that cluster is now resistance. Job one for the bulls is to stop making lower-lows. Then they would need to get above $7 per share, which is easier said than done under these conditions. The good news is that when investors perceive that the bottom is near, they don’t need many reasons to charge ahead.
The bulls may have an ally from an unlikely event. The 2008 financial crisis caused a 90% crash in General Electric stock that ended exactly at the same level as the Covid-19 bottom mid May. Within a year the stock had rallied 250%. Unlike the stock market, GE topped in 2016 but not before a 480% rally off the $5.50 bottom in set in March 2009.
While this alone is not reason to believe that the same bottom will serve footing for just as big a rally, it’s hope. If the bulls stuck with it until now then it’s too late to bail on it here.