Iconic American company General Electric (NYSE:GE) has gone through some major changes in recent years. Indeed, due to the onset of the novel coronavirus and other factors, the company is different today than it was just a few months ago. At the same time, GE stock bulls have waited patiently for a bull run that never came.
However, this doesn’t have to be the end of the story. There’s an old saying in the stock market that goes, “The longer the base, the higher in space.” And, the horizontal base in GE stock has gotten quite long.
Not long ago, the trading community punished General Electric for moving away from a non-renewable energy source. It’s possible that some traders simply aren’t able to appreciate CEO Larry Culp’s vision of a changing energy-market landscape.
Perhaps those traders will change their minds eventually. By then, though, the GE stock price could be much higher than it is today.
A Closer Look at GE Stock
Since late June, GE stock has traded in a tight range. It seems that every time the bulls try to push the stock price above $7, the sellers step in and pull it right back down to the $6 area.
GE stock’s 52-week high is $13.26, but that includes pre-pandemic prices. Nevertheless, this suggests that there’s room for the stock price to double, though this won’t likely happen soon.
The best thing that the bulls can do now is focus on the baby steps. First, they’ll want to capture and hold $7. If they can do this with heavy trading volume, that would be even better.
Then there’s the psychologically significant $10 level. A spate of short covering might be triggered if GE stock breaks through $10 with momentum. The next stop would then be $13, but that’s a bridge to cross when the bulls get there.
Saying Good-Bye to Coal
As alluded to earlier, General Electric has undergone major changes since Culp took the reins of the company. For instance, General Electric is less focused on light bulbs and appliances nowadays. Instead, the company is now mostly known for providing parts for airplanes.
Yet, the company is more diversified than that as General Electric also has a power generation segment. Under Culp’s watch, that segment is undergoing a significant shift.
Specifically, General Electric just announced that it’s going to stop making coal-fired power plants entirely. However, the company isn’t just going to leave a big void there as General Electric will now focus on renewable energy.
Evidently in response to this announcement, the trading community gave GE stock a haircut of nearly 8%. I don’t believe that this was the most rational reaction, but it didn’t surprise me.
Risk Today, Rewards Tomorrow
The reason I wasn’t surprised is that the trading crowd often prefers safety and familiarity over bold vision and risk. Culp and General Electric are forfeiting an established segment for something that might or might not pay off in the long run.
General Electric Senior Vice President Russell Stokes has a more positive outlook, however. “With the continued transformation of GE, we are focused on power generation businesses that have attractive economics and a growth trajectory,” he said.
Perhaps RBC Capital analyst Deane Dray sees General Electric’s growth potential, as well. Dray reaffirmed his “buy” rating on GE stock while issuing a highly ambitious price target of $9.
Adding fuel to the bull case is the recent news that General Electric has been selected to supply 190 turbines for the British wind farm Dogger Bank. With this, General Electric’s latest push into renewable energy is clearly off to a great start.
The Bottom Line
As the world gradually shifts towards renewable energy sources, it makes sense for General Electric to refocus from coal to wind power. Not everyone will appreciate Culp’s vision here, but patient GE stock holders should reap the benefits in time.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
