General Electric (NYSE:GE) stock is still down 2% this year but it is up 70% in three months. It’s not as exciting as say Zoom (NASDAQ:ZM) or Snowflake (NYSE:SNOW), but it’s holding its own of late. Long gone are the days from last year when GE stock was a joke. But this is where it gets harder for the bulls.
I’ve made this point before and it’s time to reiterate it. I usually am bullish on GE, so my opinion now comes from a place of admiration, not hate.
Today’s note carries a cautious tone but only for the short term. I have been GE’s cheerleader since it was under $7. Now the rest of Wall Street loves it after-the-fact. Back then the concept was easy, for this was a great American company on the verge of a comeback. Before that actually happened, I suggested to “get long GE while it is under the radar.”
The reward to those who listened was a 70% rally. Those looking for new positions should start looking for better entry points.
GE Stock Fundamentals Are Now a Selling Point, Not a Hindrance
The fundamental metrics are no longer cheap. GE now has a price-to-earnings of 28x, which is too close say to Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG). At least the price-to-sales is still 1.1x, so it’s not showing investor glut of hopium.
General Electric has earned a better metric because management has steered the ship into the right winds. They are now concentrating on sectors that are relevant like power, healthcare and renewable energy. Aviation is still struggling but will come back after the vaccines start to suppress the virus.
This team has done it! But don’t take my word for it, even the experts like Goldman Sachs love it now. Management fixed the broken company and now the broken stock is repairing itself.
That job is not done yet, however, because there are a lot of scars. You can see the scars on the charts as resistance lines and we are coming up on a cluster of them.
A better entry point for new positions in GE stock would be closer to $9.80. Starting here could face immediate resistance. This is not a major problem for those considering to hold it for eons. But for most of us who want to start on the right foot, it’s best to wait out for clues.
The first clue would be if the bulls can take out $11.50 then $12 per share. Those would trigger another wave of buying. The bulls will need all the help going into $13 massive accident scene. If GE stock fades a little it should find footing and a better base for that. There would be a much better starting point even for mid-term investors.
We Don’t Always Seek Perfection but We Should Try
The point today is not to find the perfect entry, because that would be a futile effort in the long run. I usually insist on trying to avoid the easy mistakes. If I see a lot of resistance above a current price like this then I wait it out. This is even at the risk of missing out on some upside. Alternatively, I can sell puts below current levels.
I know it sounds a bit wishy-washy to praise the efforts yet caution against buying the stock. First, I am not condoning shorting it as it’s a timing thing. Besides, I am worried about the whole market.
We have so many uncertainties yet the bulls are completely in charge. This party sounds too happy for my taste. Last I checked, we still have a massive global unemployment problem and a virus on the loose.
The vaccines are coming, especially the one from Pfizer (NYSE:PFE), but their effects will be slow over several months. This is my way of saying that we are susceptible to pullbacks when at all-time high levels. If the indices correct they will drag General Electric stock with them too.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.