In times past, retirees, income-focused investors, and safe-haven seekers would flock to General Electric (NYSE:GE) stock. Generations of long-term shareholders would take a position, collect the dividends, and basically just “set it and forget it.”
But that was then, and this is now. Even prior to the spread of the novel coronavirus, GE stock thrashed and the company struggled to regain its footing. Then came the Covid-19 crisis and any illusion of safety surrounding General Electric was shattered.
Today, GE stock only offers income-oriented investors a measly 0.62% forward dividend yield, giving investors a single penny per quarter. It provides little assurance that long-term shareholders will recoup their losses or that new investors will see any returns at all.
Incredible as it may seem, GE stock is now a wild, weird gambler’s paradise. And General Electric, an American institution to prior generations, is a mere shadow of its former self. Of what use, then, are the shares now?
Own It, But Don’t Hold It
Perhaps the best approach to trading GE stock in the current circumstances is to view it as a highly speculative instrument. Rather than hold the shares in hopes of long-term returns, it might be best to stick to quick in-and-out trades.
It’s odd to think of GE stock as a gambler’s paradise, but it makes sense in a time when uncertainty could persist for a while. General Electric is heavily involved in the aerospace-supplier niche, a sector of the economy that’s particularly vulnerable to the coronavirus crisis.
To be more specific, General Electric supplies and services engines for commercial jets. It’s a major part of the company’s business model. Demand for air travel had been down by 90% at one point recently, primarily due to pandemic-driven shelter-in-place mandates.
Covid-19 testing kits are available, but an effective vaccine continues to elude the scientific community. Until a vaccine is identified, approved, and available to the public, fears of infection will constrain the recovery of the aviation industry.
General Electric’s heavy reliance on the fiscal health of the aerospace industry poses serious challenges to long-term GE stockholders. Nimble traders can still profit from the shares’ movements, however.
Riding the Small Rallies
There’s no denying that GE shares haven’t performed well over time. Back in July of 2000, the stock was trading as more than $55 per share at one point. Now nearly 20 years later, it’s around $7.
Extremely brave investors might view this as a once-in-a-lifetime buying opportunity. The stock hasn’t traded at this level since the 1990s. And, despite the company’s struggles of late, it’s unlikely that General Electric will go out of business any time in the near future.
Someone like Warren Buffett might view this as a chance to buy when there’s blood on the streets. Or maybe not, since even the Oracle of Omaha himself capitulated and sold his airline stocks for a loss.
When Buffett gives up on a sector of the economy, that’s not a good sign. Therefore, GE stock might not be an ideal holding for long-term investors. Yet, since it’s such a volatile asset, short-term dip buyers could find opportunities here.
Consider, for example, the stock’s price action on May 18. On that day, GE shares bounced hard off of their lowest price since December 1991 and posted their biggest single-day gain in two months.
The share price then continued its upward momentum over the following three trading days. Thus, traders with expert timing can find pockets of opportunity even within an overall downtrend in GE stock.
The Takeaway on GE Stock
As a company, General Electric isn’t what it once was. That’s reflected in GE stock, which isn’t the steady buy-and-hold vehicle your grandfather might have owned. Still, the shares offer nimble speculators short-term opportunities for quick albeit unreliable gains.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.