Markets continue to rebound. But General Electric (NYSE:GE) hasn’t joined in on the fun. GE stock continues to linger in the single digits.
With shares down more than 50% since February, investors continue to lack confidence in the company’s near-term prospects.
However, today could be the right time to buy. Why’s that? As shares bottom out between $6 and $7 per share, Mr. Market may already be pricing in much of the risk. And that includes major headwinds at GE Aviation, as well as issues with GE Capital.
They may no longer be the venerable blue-chip they were decades ago. But despite the company’s salad days being ancient history, there’s still value in the stock as a turnaround play.
The recent novel coronavirus pandemic threw a wrench into CEO Larry Culp’s restructuring plans. But that doesn’t mean the company can’t make active steps to put on the fires and move the needle for GE stock. With this in mind, shares could a be a strong opportunity at today’s prices.
Things Are Getting Better for GE Stock
Given how airline stocks have performed, it’s easy to write off aviation as a whole. But while a potential rebound in air travel may be years off, things at GE Aviation may not be as bad as you would think.
Most analysts remain cautious on the company’s shares. But not Morgan Stanley’s Josh Pokrzywinski. He believes the company’s aviation business could pick up faster than rivals. This could mean their aftermarket business picks up sooner than anticipated.
Granted, this alone won’t move the needle for GE, but it is a sign things are getting better. The company has issues that weigh it down relative to other industrial conglomerates.
GE’s fortunes are closely tied to those of the overall economy. As things start to recover, the company’s underlying performance will improve. And just a sliver of improvement could be all it takes to move shares higher.
I’m not saying that shares could rebound to double digits anytime soon. What I’m saying is shares have likely bottomed out at today’s prices. Things may be bad, but they aren’t getting worse. If anything, the situation is improving for the company.
But What About GE Capital?
In prior analysis, I was bearish on this stock. A key area of concern was the company’s financial services unit, GE Capital. Even before the pandemic, this business faced trouble, especially from its continued long-term care insurance liabilities.
But now, more challenges have piled up. This may explain why global ratings agency Fitch downgraded both GE and GE Capital’s debt last month. The flagship of the company’s financial services unit is its aircraft leasing business. If airlines continue to struggle, said leasing unit could continue to deteriorate.
Also, near-zero interest rates could mean more contributions to shore up insurance reserves. In short, GE Capital continues to be a headache.
And the issues with this unit aren’t the only problem, financially-speaking. Don’t forget the company’s massive pension liability. And, as interest rates fall, pension obligations go up as it takes more money to produce the income needed to keep plans solvent.
This doesn’t mean General Electric is in a bad place balance-sheet-wise. As InvestorPlace’s Larry Ramer wrote May 11, asset sales and access to credit could mean the company has enough liquidity to ride out today’s issues.
The company’s proactive steps in years past could help prevent the long-term care issue from getting worse. Regarding pensions, they’re taking active steps such as freezing some plans to manage this obligation.
In short, GE’s financial problems are far from over. But don’t expect them to get worse in the near-term.
No Slam-Dunk, but Consider GE Stock a Cautious Buy
They may not be anyone’s favorite stock right now. But, given the company’s fundamentals may improve as the year progresses, shares could be a solid opportunity as they linger in single-digits.
GE Aviation, the company’s flagship unit, stands to improve as planes return to the skies. And even issues surrounding GE Capital, the company’s pension obligations, and other balance sheet concerns may already be more than priced into the stock.
The company’s many challenges remain. But, as shares bottom out between $6-7 per share, consider GE stock a cautious buy.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.