The stock market is taking a much-needed break and selling off. However, General Electric (NYSE:GE) hasn’t been performing well. If GE stock can’t do well when times are good, why on earth should investors buy it when times are bad?
Here is the problem in a nutshell: General Electric doesn’t have the fundamentals that make it a buy when times are tough and volatility is picking up. There are many stocks where this isn’t the case, such as Apple (NASDAQ:AAPL), Bristol-Myers Squibb (NYSE:BMY), Honeywell (NYSE:HON) or any number of companies out there.
However, GE also lacks the technicals to justify a long position, too.
Boeing’s Problem Gets Worse
GE’s bright spot used to be aerospace. That was the company’s saving grace when it came to its various operations and ill-time deals. Aerospace was a consistent winner for almost all parties involved.
Look at Boeing (NYSE:BA). It used to be a cash flow machine with a hearty dividend. Now the company continues to limp through various quality issues with its bloated balance sheet. Granted, the novel coronavirus has severely derailed the company’s standing, but it has a fair share of company-specific problems to take the blame for.
Its 737 MAX issues have been well documented. That’s partly because two plane crashes involving the 737 MAX killed so many people and partly because it was Boeing’s best-selling jet. It doesn’t help that there’s been so much controversy on company’s part, too.
With regulators and customers slamming the brakes on the 737 MAX, it’s had a trickle-down effect on GE, which made the plane’s engines. The continued delay of the jet has had a negative effect on GE stock, as one can imagine. On Sept. 8 though, reports surfaced that Boeing’s 787 Dreamliner has had slowing deliveries thanks to a manufacturing flaw. What company makes the engine for this model? GE, of course.
Admittedly, it would be speculation to say that GE will see slower order flow from Boeing as a result of this latest development. But it’s another stain on the company’s aerospace business, which continues to get less attractive by the day.
Valuing General Electric Stock
The company is forecast to lose 4 cents per share this year after earning 65 cents per share in 2019. In 2021, estimates call for earnings of just 35 cents per share — about half of 2019’s total.
That comes on a forecast calling for 17% drop in revenue this year and a rebound of just 4% growth in 2021. These are not the numbers we like to see and it helps explain why the stock has basically flattened since the coronavirus sell-off.
Admittedly, its new management team led by CEO Larry Culp is making GE a better company. But it’s a lot of work and not completely in its control (with the current environment).
The balance sheet and income statement have taken some heavy hits over the past few years and its business units are struggling. Free cash flow has been negative and is expected to stay negative this year, too.
A majority of GE’s business units are generating a loss as well — there’s just no momentum here. Of all the stocks out in the market, I see little reason to go after this one right now.
Trading GE Stock
Bulls’ saving grace is $6 right now. That level ultimately acted as support amid the March breakdown. GE stock found its footing near this level around the same time the overall market did.
In its post-earnings action in July, GE also hit a low of $6, then $6.02 in the following session before rebounding higher. Only once did this level really give way, which came in May.
Near $6 now and with the markets reversing hard off its all-time highs, does GE stock have what it takes to again find support near this mark? Hopefully so — but as you know, “hope” isn’t a strategy.
Should $6 fail, look for a test down to $5.47. General Electric hammered out a low at this level over the course of three consecutive days where this was the exact low. Below it puts $5 or lower on the table.
On the upside, bulls need to see GE stock reclaim its 20- and 50-day moving averages. Above that and reclaiming downtrend resistance (blue line) could create some acceleration to the upside, potentially to the 23.6% retracement near $7.30. Above that could put the 38.2% retracement and 200-day moving average on the table.
On the date of publication, Bret Kenwell held a LONG position in AAPL and BMY.