During the holiday season, the lyrics to a popular holiday carol go in part, “Although it’s been said many times, many ways…” And that’s how I’m choosing to start my message about General Electric (NYSE:GE) stock.
I’ve written about GE stock several times since Larry Culp took the reigns as CEO. Every time, my articles have had a recurring theme.
General Electric is doing a great deal, and a great job, of restoring investor confidence. And Culp is doing what he was initially brought in to do. He’s cutting costs and streamlining the business. In a year when speculative stocks are moving forward on the hope for profit in a few years, GE may seem like a solid buy.
But analysts hold mixed reviews about GE stock. Recently offered opinions give GE stock favorable price targets. However, I find myself saying the same thing in different words. General Electric is getting rewarded for being less bad.
But that’s not the same thing as being good.
Defense Only Goes So Far
Eighteen months ago, General Electric was a mess. After years of acquisitions, the company’s business units looked like the island of misfit toys. Plus, the company was facing allegations of fraud regarding its pension program.
Culp didn’t sugarcoat the situation for investors. And he’s done a great job of streamlining costs for GE. But playing defense only gets you so far. At a certain point, you have to be able to put points on the board. That day may be coming sooner than once thought. However, Culp concedes that the company is still in the early innings of its turnaround. It’s true that CEOs often underpromise in order to overdeliver. And Culp can’t afford to be anything less than transparent with his shareholders.
But I think in this regard, Culp is acknowledging that for GE to take its place as a great American company, it needs a great American economy. That is still a work in progress.
There is Good News
General Electric is making progress. As evidence for this, I’ll turn to InvestorPlace’s Matt McCall, who wrote this about the company’s business:
And yet, business is improving. When you dig through the numbers, there’s no denying it. But just because a company is improving does not mean it’s healthy. It doesn’t mean it’s out of the woods.
General Electric has major exposure to aviation and health care. Both sectors are having miserable years for reasons that have nothing to do with GE. However, investors saw the company posting an unexpected positive earnings per share in its most recent quarter and took the stock for a ride.
I’ll say it again, more speculative stocks have climbed higher this year on much less positive news than General Electric. But I tend to listen to what a company’s CEO says. And when Culp says the company is only in the early innings of his plan, I’d believe him.
One thing that could help is if the company would raise its dividend which it slashed brutally in 2018. The company was originally planning to increase the dividend this year. But the novel coronavirus got in the way. Once again, that’s not GE’s fault. But it now appears likely that dividend investors will have to wait awhile.
The Good News is Priced Into GE Stock
Next year is ushering in a new administration that should be favorable to renewable energy and less hostile towards China. It’s also the year when the world will hopefully benefit from a vaccine that would allow the company’s aviation business to increase its revenue.
Culp is doing the best he can with the hand he’s been dealt. But that doesn’t mean that GE stock should get any closer to its 52-week high. I’ve said it in different ways, GE stock may not be a sell, but until the economy significantly improves, I would be very careful about increasing a position on hopes of the stock moving higher.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.
