I was just beginning to like the turnaround at General Electric (NYSE:GE). But even before the Covid-19 pandemic affected all of GE’s other business units, GE stock was being affected by forces outside its control.
It started last year when the problems with the Boeing (NYSE:BA) 737 Max jet halted production. GE’s Aviation unit was the shining star that could always be counted on, but now it was reeling. Then, the novel coronavirus shut down large sections of our economy. And that meant the company saw weakness in its Power, Industrials, and Healthcare businesses.
However, what’s different this time around is that the company isn’t facing self-inflicted wounds. That doesn’t make it any more pleasant for GE shareholders. But I believe it does provide a bit of tempered optimism.
The Company Gets Points for Candor
It may not be reflected in the GE stock price, but Larry Culp has done a good job of restoring investor confidence. When Culp took the helm at GE in 2018, he needed to urgently repair the balance sheet. But he also needed to show investors that the company was serious about reinventing and refocusing the company.
And in that regard, Culp gets high marks. But as Culp already knew, straight talk only gets you so far. The company’s earnings were poor. Its short-term outlook is cloudy to say the least.
Is a Rebound on the Way?
Luke Lango wrote in assessing GE’s current struggles that “GE stock is depressed today because the global industrial economy is depressed.”
Lango went on to suggest that as the economy heals and recovers, investors can expect GE stock to rebound. By Lango’s calculations GE is a good candidate to double by 2022. However, that requires a lot to go right.
First, there has to be a safe, effective, and widely available vaccine. The first two elements are tricky enough. Vaccine production simply has never been done this fast. First, a company such as Moderna (NASDAQ:MRNA) has to successfully get a vaccine candidate out of phase 3 trials. But then, the question becomes, how many people feel comfortable taking it and how long will it last?
However, getting a vaccine to be available on a global scale will be a massive undertaking. Can the world’s biotech companies do it? I would think so. However, we are in a climate where there will be much higher scrutiny placed on who has access to the vaccine.
Which brings me to my second point. Our nation is in chaos right now. And there’s no guarantee that an election which, due to mail-in voting, may not be wrapped up on election night, will bring clarity. It may just add to the chaos. Whether you vote red, blue, or purple, we are getting to the point where the economy needs certainty. I’m not sure that will happen.
And third, without both of those ingredients, it’s likely that the economy won’t be able to rebound as aggressively as some are hoping for.
That’s just a lot of unknowns for me.
A Realistic View of GE Stock
General Electric should be able to make its way out of the current pandemic. And while I’m not calling a bottom, the stock isn’t going to zero. So, if you own GE stock, I don’t think you should sell into the fear. The stock needs some time, but there is a path for growth. The company didn’t cause its current situation.
With that said, I can’t quite get onboard with Luke Lango’s bullish thesis that GE stock could double in 18 months. I agree with the logic, but it relies on a lot of things breaking the right way. And as I’ve described above, there are a host of things that can go wrong for one or more of GE’s business units. Therefore, I don’t think there’s a compelling reason to buy.
GE stock is a hold for now. The stock may be a buy at the end of the year. That’s if the news on the vaccine front remains positive. And if the election provides clarity and not chaos. And if the economy truly provides the explosive recovery that bullish analysts predict. But there’s the saying “if ifs and buts were candy and nuts oh what a Christmas we’d have.” And a bullish case for General Electric is hanging on many ifs and buts.
A realistic look at GE is for a lot of sideways trading until next year with some modest growth after that. It’s not going to be an exciting ride, but there may be some reward if you put it on your holiday shopping list.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.