With the mass rollout of the novel-coronavirus vaccines underway, it certainly pays to have an optimistic outlook towards stocks like General Electric (NYSE:GE) Last year was a mixed bag for the company, with its results going from good to bad and then rebounding.
GE stock is up 89% from its March lows, but it is still down slightly over the last 12 months. While we can’t predict what the future will bring, the conglomerate has several positive catalysts that will take hold in 2021. Here’s why I think this company is worth betting on this year.
GE Stock Was Steadily Climbing Before the Pandemic
Like most major conglomerates in the U.S. General Electric took a major hit during the pandemic. However, the stock has experienced a strong resurgence since then, as investors have remained largely bullish on GE’s ability to make a comeback.
The company kicked off the new year on a high note, but there are several factors that hint at much greater gains for GE stock in 2021.
The first factor is the company’s current leadership. After Larry Culp became the CEO of General Electric two years ago, there has been a significant improvement in the company’s bottom line. Known for turning around businesses, Culp was able to cut costs, reduce GE’s debt (from $390 billion to $79 billion) and offload a number of its assets.
This has given GE greater financial flexibility. With its strong leadership team, the firm is poised for a strong comeback.
Second, it’s also worth taking a closer look at the improvements in GE’s balance sheet. In addition to its debt reduction, GE also has a substantial liquidity reserve of $21.2 billion as of the end of the third quarter.
That will help the company expand as it rebuilds to adapt to a post-pandemic world. Furthermore, it slashed its annual dividend to 4 cents per share, bringing its yield to 0.35%. While this isn’t the best news for dividend investors, it has saved the company an estimated $2 billion annually.
Sure, 2020 wasn’t a great year for GE stock. But given GE’s successes prior to the pandemic, I’m willing to bet that it is likely to rally strongly in 2021.
Will General Electric Pick Up the Pace in 2021?
GE has several large business segments and, in recent years, the company has worked to focus on its most profitable units. However, the pandemic had an adverse impact on some of its key businesses which caused it to report some major losses in 2020. But its revenue growth is expected to reaccelerate once again as we head towards a new normal.
GE’s Aviation unit took the biggest hit, with travel coming to a near- standstill for part of last year. To understand the gravity of the travel slowdown’s impact on GE, this segment brought in just $681 million of revenue in the first three quarters of 2020 versus $6.82 billion in all of 2019.
With travel expected to pick up in the second half of 2021, all eyes will be on this unit. GE manufactures engines for airplanes and will likely see demand for them rise as the utilization of airplanes jumps. Although it will take a couple of years for Aviation’s results to reach pre-pandemic levels, the unit will eventually regain its former glory. That’s a long-term tailwind which is worth waiting for.
GE’s second-biggest segment is its Healthcare division. While it is natural to assume that this sector’s sales rose in 2020, its revenue actually dipped last year. Healthcare’s top line stood at $3.9 billion in 2019 and fell to $2.2 billion for the first three quarters of 2020.
That is because the unit specializes in selling diagnostic equipment. With hospitals utilizing most of their resources on Covid-19 treatment and research, many put equipment orders on hold. However, once hospitals return to their pre-Covid level of activity, GE’s equipment orders will rise once again.
The Bottom Line on GE Stock
Looking ahead, GE’s main goal will be to improve its financial position. Last year was tough for the company in many areas, but its losses were largely due to the pandemic. Due to the vaccine rollout, its revenue will eventually return to 2019 levels.
Also, it’s worth noting that GE was making steady improvements to its bottom line prior to the pandemic. I’m willing to bet that good decision-making by its management, coupled with the reversal of its pandemic-induced losses, will lead to a rally by GE stock in 2021.
Given its potential for growth, GE’s current share price of $11.63 makes this stock look like a bargain.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.