For more than a year I have not changed my mind about investing in General Electric (NYSE:GE) stock. This is one to own for the long term as management is in the process of righting the ship. For a while it became an embarrassment, but now it’s on its way back to old glory.
Success is often most impressive when a company can regain footing after massive failures along the way.
It took GE about two years to find the right management mix to do the job properly. Now its business segments are in line with current trends. They have four clear tiers, which include healthcare and clean energy. One is a current necessity and is booming. The other is the way the world wants to be in the future.
Green is the color of choice and GE can help make that happen.
GE Stock Is On Its Way Back
It is also important to realize that they haven’t crossed the finished line. Turning around a ship this big takes time. The current profit-and-loss statement is still far from its heyday. Total revenues are still down 35% from four years ago but they have swung back into profitability.
In 2017 when revenues were $118 billion a year and they lost $8 billion to do it. Now they have net almost a billion on only $76 billion dollars of revenues. Clearly the company is more efficient and that allows management to earn kudos credit on Wall Street. GE stock is no longer a joke and the company still generates almost $4 billion in cash flow from operations.
They are no longer in panic mode, but the financial metrics alone are still not the convincing factor. If we layer the technical aspect, we get a better picture of what could be ahead for GE stock. The fall from grace of 2016 took almost two years to happen. It eventually shaved 80% off the value of the company. Finally it bottomed with the market in December of 2018 when the Federal Reserve flipped the bullish switch.
From there, it rallied almost 100% before stumbling with the pandemic crisis. Then it was back to the drawing board on the stock chart for GE. The bulls were able to finally break out in November of last year. They brought it back to its pre-pandemic starting point. They have so far spent almost two months basing at these levels, so the bulls have a tailwind.
There Are Outside Risks
As long as the stock market doesn’t freak out into the taper, GE stock has the base for more upside. How much more will depend on how long the stock market can remain bullish. Technically, if it rises above $118 per share it can rally 30% before hitting strong resistance. Above that there’s still quasi-open air with a bunch of tough old levels to conquer.
But that’s putting the cart before the horse, as they say. Step one is to overcome the $118 trigger. It is also important not to lose the baseline they just established. Falling below $95 per share would be a disappointment. It would just render the rally back a lot more complicated. After achieving such progress I would hate to see it stumble for no fault of its own.
The reaction to the most recent earnings report was so-so. There was upside then downside twice over. They are back to mid-range where it has been pivoting since February. This reverse split brings the stock GE stock back above $100 per share. This is a psychological level that the investors will fight hard to hold.
It is a unofficial advantage from a stock strategy that has nothing to do with its value. Reverse-splitting a stock does nothing for the results that the company delivers. Management could be window-dressing it for other reasons, such as perhaps re-inclusion in an index.
Whatever it is, the fundamentals are solid and the bulls are in charge. Owning GE stock for the long term remains the better idea then selling it. This is still a 12-digit market cap stock that had fallen off the radar. It is no longer a joke, and it is back to being an American icon.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
