Suffice it to say that it’s been one heck of a year for iconic American company General Electric (NYSE:GE). Indeed, GE stock holders have suffered devastating lows but more recently, the bulls appear to be regaining control of the price action.
There’s a lot to unpack here as General Electric is a vastly different company than the one that your great-grandparents knew. The company was once known as a manufacturer of home appliances.
Today, it’s involved mainly in manufacturing for the aviation industry as well as electrical power and renewable energy.
So, General Electric is a company in transition. This foundational shift was underscored by the CEO change as Larry Culp replaced John Flannery in 2018. And then, to complicate matters even further, the onset of the novel coronavirus put negative pressure on the aviation industry this year.
November has given GE stock traders even more to think about as a prominent analyst issued his opinion on General Electric while the threat of workforce cuts may induce a measure of investor anxiety. So, let’s try to make sense of all this, and perhaps even form a well-considered position on this all-American mainstay.
A Closer Look at GE Stock
If any investment might turn out to be the comeback story of 2020, it’s GE stock. Rising from the 52-week low of $5.48, GE shares have built forward momentum and are now threatening a major breakout.
Don’t get me wrong. GE stock bulls still have some ground to cover before they reclaim the 52-week high of $13.26. Nonetheless, it’s impressive that the bulls managed to push the GE share price up to $10.50 in November.
Value-oriented investors might appreciate the fact that GE stock has a trailing 12-month price-to-earnings ratio of 29.83. That’s fairly reasonable, especially after the recent sharp run-up in the share price.
Unfortunately, GE stock isn’t the dividend king that it used to be. Currently, the stock only has a forward annual dividend yield of 0.4%. Consequently, the shareholders are mainly counting on the stock price to appreciate in value. But will this happen in 2021?
A Rapid Re-rating
No one knows for sure, but at least we can say that prominent UBS analyst Markus Mittermaier sees a bright future for GE stock. Mittermaier actually raised his price target on the stock not once, but twice in the span of a month.
First, he raised his target from $8.50 to $9 with the suggestion that GE stock is strongly levered to the development of a Covid-19 vaccine. I tend to concur with this line of reasoning as the aviation industry should benefit when the public feels more confident that it’s safe to travel.
But the analyst didn’t stop there. More recently, Mittermaier issued a “rapid re-rating” of GE stock, expecting “further upside with the debate ultimately returning to where we left it off in February.”
With that, Mittermaier reiterated his “buy” rating on GE stock while hiking his price target yet again, this time from $9 to $12.
Deep Cuts Coming
That’s a huge price-target increase, but it’s not unreasonable. After all, as I already mentioned, GE stock has traded as high as $13.26 this year.
Does this mean that everybody should immediately load up on GE stock? Not necessarily. Personally, I would say that a moderate long position is reasonable at this point.
Overly optimistic bulls should heed the warning of GE Aviation boss John Slattery. He reported, “The business revenue and profit projections not only for this year but next year and the year after are fundamentally lower than what we originally budgeted or expected.”
Slattery also cautioned, “The promise of the vaccine certainly brings hope, but it’s not coming as fast as we’d like.” With that, Slattery braced General Electric stakeholders for likely job cuts over the next 18 months.
This doesn’t mean that General Electric is necessarily in real trouble. It’s just a cautionary note for overeager traders. We can remain generally bullish but also see that the coin has two sides, so to speak.
The Bottom Line
Mittermaier sees strong upside for GE stock, and he may be right. Yet, it’s reasonable for the bulls to temper their optimism. After all, it might take a while for a Covid-19 vaccine to be available to the public.
The best strategy, therefore, could be a moderate position in GE stock for the time being. As conditions improve, one could always add to his or her position gradually.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.