After General Electric (NYSE:GE) stock was given a “buy” rating by Goldman Sachs and the conglomerate made two huge wind-energy deals, I remain very bullish on GE stock.
Goldman’s note effectively gives many investors the “green light” to buy the shares again.
Meanwhile, the wind-turbine deals, in tandem with the company’s intelligent decision to exit the coal business, should cause younger investors and those looking for renewable-energy plays to resume buying GE stock.
In previous columns, I’ve predicted that GE’s financial results would rebound tremendously after a vaccine for the novel coronavirus is introduced. Goldman analyst Joe Ritchie, who reinstated GE stock with a “buy” rating and a price target of $10 on Oct. 9, appears to agree with that sentiment.
“Our base case assumption is that a vaccine will be mass distributed over the next 12 months and, under this scenario, we believe the second derivative improvement on the resumption of air travel will be significant,” Ritchie wrote, adding “many of the underlying concerns on GE’s balance sheet will fall to the background.”
In the past, I’ve expressed optimism about the ability of the conglomerate’s new CEO, Larry Culp, to turn around the company. I’ve been upbeat on Culp due to his focus on reducing costs and his previous success as CEO of Danaher (NYSE:DHR).
In his recent note to investors, Goldman’s Ritchie reportedly wrote that Culp has helped GE become a “leaner, structurally more productive company with better capital discipline.”
The analyst’s bullishness, together with Culp’s recent forecast for positive cash flow for GE in the second half of the year, should lead to much more interest in GE stock by both institutional and retail investors.
A Closer Look at GE Stock
On Sept. 21, GE announced that it would supply 190 of its 13 MW offshore Haliade-X wind turbines to the U.K.’s Dogger venture. Under the deal, the conglomerate will also ” provide operational support for the wind turbines” for five years.
According to Seeking Alpha, the deal constitutes the largest single order ever for offshore wind turbines.” Moreover GE announced it would supply 187 onshore turbines to energy developer Invenergy. Wind energy is expected to account for 44% of America’s new power generation in 2020.
The U.K. deal validates the new Haliade-X offshore and positions GE as a premiere wind-energy company. At a time when investors in general and the growing number of young investors in particular are looking for exposure to renewable energy, the conglomerate’s new status is quite positive for GE stock.
Furthering the company’s new positioning, GE, also announced it would no longer build new coal power plants.
Another deal shows the huge remaining potential of the conglomerate’s natural-gas business. According to Reuters, Russian state energy holding InterRAO it plans to invest up to $580 million in a joint venture with GE
The news service noted that Russia is looking to update a quarter of its thermal power capacity.
As electricity is increasingly used to power transportation, requiring many new power plants, and as many countries look to switch from coal to natural gas, GE is likely to receive many more large natural-gas deals going forward.
The Bottom Line on GE
With air travel poised to rebound strongly in the next year and investors becoming more upbeat on Culp’s management and GE’s wind-turbine business, GE stock should perform very well in the coming months and years.
On the date of publication, Larry Ramer held a long position in GE.
Larry 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. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, solar stocks, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.