Contracts in Developing Countries Bode Well for GE Stock

Events in Iraq and California indicate that the longer-term outlook of General Electric’s (NYSE:GE) Power unit remains positive. Also bullish for GE stock is a report that a vaccine for the novel coronavirus could be approved before the U.S. election on Nov. 3.

A large General Electric (GE) sign.
Source: testing / Shutterstock.com

In light of these developments, GE’s shares continue to remain attractive.

On Aug. 19, GE announced two deals worth a total of more than $1.2 billion with Iraq. Under a $500 million agreement, GE will provide service and perform upgrades on several power plants with the aim of improving efficiencies and maintaining more than 6,000 megawatts of electricity.

As part of another deal worth $727 million the Grid unit of GE’s Renewable division will, adoring to the announcement,  “reinforce Iraq’s transmission network, enhancing grid stability and interconnection with the electricity grid of Jordan.”

“‘Our primary focus is to deliver uninterrupted electricity, especially during summer months, to meet the needs of our people and industry, said Majid Al-Emara, Iraq’s Minister of Electricity, in a statement. “Bringing world-class technology, especially to upgrade our power plants, and to ensure their seamless operation is a critical part of this strategy.”

Developing Countries and GE Stock

As more developing countries become wealthier due to the longer-term growth of the world economy and as GE CEO Larry Culp improves the company’s Power and Grid offerings, the conglomerate should get similar lucrative deals going forward. Other major developing countries looking to boost their electricity output include India and the Philippines.

Meanwhile, California, which is among the world’s leaders when it comes to solar energy, recently had to resort to ordering “rolling blackouts” because of its failure to generate enough electricity to meet demand.

Experts, as well as California’s energy regulators, are saying that the state’s experience shows what I have long believed; in order to meet electricity demand, natural gas will have to be used in conjunction with renewable energy for years to come.

That reality is certainly positive for GE and its Power unit, which generate a meaningful amount of revenue from the conglomerate’s Gas Power business. Or, put a different way, the GE stock bears who thought the company’s natural-gas business would be crushed by renewable energy have once again been proven wrong.

“A renewable grid that would satisfy the demands of August 15 in California would require 4.7 times as much renewable generation capacity as is available today and sufficient energy storage to shift the extra daytime electrons from solar to the evening,” said Chief Science Officer and Chief Commercial Officer at New Energy Risk Brentan Alexander.

Alexander conservatively estimated that procuring the “sufficient” energy storage to which he referred would cost $90 billion.

That sounds unaffordable for California at this point. So until battery prices drop very sharply, California, along with many other American states and developed countries, will have to continue utilizing a meaningful amount of natural gas for the foreseeable future.

Moreover, as electric cars become much more popular around the developed world, electricity demand (after the pandemic is over) will only increase, raising the need for natural gas going forward.

Potentially Good Vaccine News for GE

As I’ve noted in the past, Aviation is GE’s largest unit. In the fourth quarter of 2019, the unit reported revenue of $8.9 billion and its bottom line came in at $2.1 billion. If the airline sector is revived by a vaccine for the coronavirus, GE would get a tremendous boost.

So a recent report that President Donald Trump may cause AstraZeneca’s (NYSE:AZN) vaccine for the coronavirus to be approved before the U.S. presidential election is good news for GE and the owners of GE stock.

If a vaccine is indeed approved in late October, a large rally by GE stock is likely to occur in only two months. By the beginning of 2021, regardless of the president’s actions, multiple vaccines should be approved, reviving the conglomerate’s Aviation unit and boosting its shares tremendously.

The Bottom Line on GE Stock

GE’s Power unit should benefit from electrical upgrades by developing nations, along with continued large-scale usage of natural gas and growing demand for electric cars in developed countries.

Meanwhile, its shares could get a big boost form the approval of a vaccine for the coronavirus in just two months. Finally, the shares’ trailing price-sales ratio is just 0.6. Given these points, I recommend that investors buy GE stock.

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015.  Among his highly successful, contrarian picks have been Plug Power, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.  As of this writing, he owned shares of GE.


Article printed from InvestorPlace Media, https://investorplace.com/2020/08/contracts-in-developing-countries-bode-well-for-ge-stock/.

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