GE Stock Could Hit $9 Before $19

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General Electric (NYSE:GE) finished 2020 with a loss of over 10%. Although GE had a remarkable comeback from the lows hit in March in the early days of the pandemic, the shares did not have a full recovery during the year.

The General Electric (GE) logo on a building
Source: Sundry Photography / Shutterstock.com

The industrial giant has a proud history of about 150 years and operates in 170 countries. Yet for long-term investors, the stock been a poor investment in more than five years. In July 2016, GE stock traded over $32. Now it is around $10.5. As we turn the leaf to a new year, shareholders wonder whether they should buy GE stock at these levels. If you do not yet own General Electric, you may want to wait until the release of Q4 results in late January before committing new capital into the industrial giant. Here’s why.

How Q3 Results Came

Sales of General Electric have consistently fallen over the last few years. In late October, when GE released Q3 metrics, a similar decline-picture emerged as the pandemic affected each of its major operating units adversely.

Total revenues came at $19.4 billion, down 17% YoY. Non-GAAP adjusted EPS was 6 cents, down 60% YoY. Non-GAAP Industrial free cash flow (FCF) was $514 million, and decreased 21% year-over-year.

In the metrics, investors paid attention to GE’s four, relatively distinct, segments:

  • Power; revenue down 12% YOY.
  • Renewable Energy revenue down 21% YOY.
  • Aviation (most important segment) revenue down 54% YOY.
  • Healthcare revenue down 20% Y0Y.

Understandably many analysts were concerned with the results, debating whether the company is in terminal decline. As a result, Q4 earnings, which are due in late January, will be important to analyze.

On a more positive note, General Electric “Reduced debt by $11.7 billion year to date, including $8.1 billion in GE Industrial debt and $3.6 billion in GE Capital debt. GE also reduced debt by $2.6 billion in the third quarter.” The decrease in debt levels is crucial for creating the robust financial foundation management has been working on.

CEO Larry Culp said, “We are improving our profit and cash performance with organic margin expansion in every segment except Aviation, though orders more broadly remain under pressure. While our work continues, GE’s transformation is accelerating, and we expect Industrial free cash flow to be at least $2.5 billion in the fourth quarter and positive in 2021.”

GE stock’s forward P/E and P/S ratios are 27.03 and 1.11, respectively. Those metrics do not necessarily show a value share at this point. And without the supporting fundamentals, it is not possible for the stock to have the tailwinds to create shareholder value. 

Moreover, GE is a widely held and actively traded company. Average daily volume stands around 75-80 million shares. And its beta is about 1.08. So the GE share price is likely to be more volatile than the broader market. If profit-taking hits the S&P 500 index soon, we can possibly expect GE stock to come under pressure, too.

Finally, GE shares also among the most-widely held Robinhood stocks. Therefore, shareholders should be ready for wide price swings in the stock. In case of an upcoming profit-taking in the markets in the early weeks of 2021, it is likely that traders will push GE stock to $9 or even below.

The Bottom Line on GE Stock

Even before the uncertainty due to the pandemic hit our shores last year, GE’s management was finding it difficult to regain shareholder trust for the long term. 2020 is likely to be another challenging year for those at the helm of the industrial giant.

In the coming weeks, I expect GE stock to trade in a range between $8 and $10. Long-term investors with a two-to-three year horizon may consider buying General Electric shares if the price goes toward $9 or even below. Patience will be required to see your capital grow for the company with a long history of lackluster performance.

If you already own GE stock, you might want to stay the course. Alternatively, if you are an experienced investor in the options market, you may also consider using a covered call strategy with approximately a six-week time horizon, i.e., Feb 19-expiry. Such a covered call position would enable to you to participate in a potential up move and also offer some downside protection.

Finally, those investors who would like some GE exposure could consider buying into an exchange-traded fund (ETF) that has the stock as a holding. Examples include the Fidelity MSCI Industrials Index ETF (NYSEARCA:FIDU), the First Trust Global Wind Energy ETF (NYSEARCA:FAN), and the VictoryShares Protect America ETF (NASDAQ:SHLD).

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation and publishes educational content on investing.

Tezcan Gecgil, PhD, began contributing to InvestorPlace in 2018. She brings over 20 years of experience in the U.S. and U.K. and has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Publicly, she has contributed to investing.com and the U.K. website of The Motley Fool.


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