With the markets generally moving in a positive direction following the devastation of the novel coronavirus, investors who feel they missed the initial boat are looking for underappreciated opportunities. One name that has caught contrarian eyes is General Electric (NYSE:GE). Steeply impacted due to the disproportionate hit on the travel industry, GE stock is attractive on paper.
Obviously, there’s the cheap price point to consider. At under $7 at time of writing, GE stock could theoretically provide outsized gains due to the law of small numbers. Any news — or even no news — could be a positive catalyst.
Further, General Electric has not substantively enjoyed the recovery narrative that has buoyed other investments and sectors. During the March lows, GE stock closed down at $6.10. That’s only a 12% move to today’s price. Even Boeing (NYSE:BA) has soared over 80% from its closing low of March to June 26.
Therefore, the thinking goes, if other embattled organizations can catch a nice tailwind, General Electric is due for one too.
But more importantly, air travel is on the comeback trail. Earlier in June, the Washington Post reported that air travel is up 400% from the bottom of the Covid-19 crisis. Recently, that figure has moved significantly higher. Back when the Post disclosed its findings, passenger volume was in the high teens relative to year-ago comparisons.
Now? According to the Transportation Security Administration, on June 25, passenger volume was 23% that of the year-ago period. We are absolutely moving in the right direction. But that alone isn’t good enough for GE stock, which is why you still want to be skeptical here.
GE Stock Faces Too Many Variables
From a broader perspective, I can appreciate why someone would be interested in General Electric. Right before the crisis happened here, shares traded briefly above $13. That’s about double where we are now.
Of course, GE isn’t going to jump there once the fundamentals improve to 100% capacity.
You must have the vision to see where the fundamentals eventually will end up. Thus, the narrative for GE stock mimics sound investing strategies, some of which I adopt for my portfolio. Hence, this is a very deceptive name.
The big variable here is rising coronavirus cases throughout the U.S. According to CNN.com, 12 states are slowing down or halting reopening measures. In addition, Texas, Florida, Georgia, Idaho, Tennessee and Utah “reported the highest single-day totals of new coronavirus cases.” Also, “Florida, seen possibly as the next U.S. epicenter, reported its highest one-day total of new cases on Saturday with 9,585 cases.”
Interestingly, Vice President Mike Pence canceled events in Florida and Arizona due to “an abundance of caution.” If President Donald Trump’s administration is concerned about the Covid-19 resurgence, that doesn’t bode well for GE stock.
And forget about the implications of possible county-wide or statewide lockdowns; what will this do to consumer sentiment for travel? Again, forget about whether the mainstream media is “fake news” or not. It really only matters what most consumers believe. If they believe this crisis is real, then it’s real. Thus, we have another variable for GE stock.
Finally, even if we didn’t have these case spikes, would air travel return to a viable level for General Electric? And what exactly, given our new normal circumstances, would that profitability threshold be?
Can General Electric Survive New Work Culture?
For the average American, not everything about the coronavirus has been detrimental. From a half-glass-full perspective, we’ve generally had more time to spend with family and friends — you know, what really gives our lives meaning.
And what has made this extra personal time possible is the transition to remote work. Managers have largely been skeptical about telecommuting because they fear the loss of productivity. After all, if employees are goofing off on company time, how could you trust them in their living room? But with the pandemic, they had no choice but to make the shift.
Remarkably, I believe both company executives and employees have seen this transition as a win-win. For employees, I already mentioned the most significant benefit — extra time. But for upper management, they’ll recognize that they don’t need to spend so much on overhead and other expenses, such as travel and in-person conferences.
They can get stuff done outside of the physical medium. It’s a big win for technology and innovation. Unfortunately, it’s a huge loss for GE stock.
What happens to business travel demand in this new normal? Obviously, it would decline, which would see cuts among airliners and aircraft manufacturers. That will spill over to revenue losses at GE Aviation on both the product and service end.
Ultimately, my recommendation still stands. Sell General Electric stock into strength.
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.
