During its most challenging years, industrial giant General Electric (NYSE:GE) seemed to have trouble staying focused. Much to the chagrin of GE stock investors, the company was dabbling instead of doing what it does best.
The onset of the Covid-19 pandemic further tested even the most stalwart shareholders. Some folks bailed, though that turned out to be a mistake. Now, General Electric CEO Larry Culp appears to be staging an effective turnaround.
At the same time, however, the GE stock price has gone nowhere fast lately. For much of 2021, the buyers have pushed the share price up to $100 without a decisive break of that key level.
Will patience pay off in the long run? Don’t anticipate a moonshot tomorrow or next week, but you can reasonably expect to see a return on your investment as General Electric transitions into a leaner, cleaner business.
GE Stock at a Glance
The longer the base, the higher in space. It’s an old saying, which in the current situation suggests that GE stock is like a coiled spring, building up tension and ready for a bounce.
Don’t get me wrong — General Electric’s investors are usually accustomed to gradual growth, not powerful rallies. Nevertheless, there may be a sizable move in the share price coming up.
We’ve witnessed the buyers attempt to push GE stock above $100 and even $110 (split-adjusted) in March and May, but to no avail. It just feels like there’s a tug-of-war going on between the bulls and the bears, with no clear winner yet.
Note that we’re adjusting all prices here, since General Electric enacted an 1-for-8 reverse share split back in August. So, what was around $12.50 back then is more like $100 today.
In any case, the buyers will definitely want to see a strong upward move on high trading volume. It’s all about the stock’s price action at this point. After all, the forward dividend yield of 0.31% probably won’t pay the bills.
Lightening the Load
Under CEO Larry Culp’s leadership, General Electric has jettisoned some less profitable business segments. These include the company’s long-standing light bulb business, a biotech unit and a “majority stake in its oil field services business.”
Now, the new focus revolves around the company’s aviation segment. This is a savvy move, as General Electric and GE stock should benefit if there’s a continued recovery in the travel market. And if you approve of this strategy, then you ought to be pleased with another recent development.
Reportedly, General Electric is in talks to sell its nuclear turbines division to French power group EDF (also known as Électricité de France).
If all goes as planned, this transaction could net General Electric around $1.2 billion. That alone could help the company tremendously during this critical turnaround phase.
France on Board
This isn’t to suggest that General Electric is in dire need of capital, however.
According to General Electric’s second-quarter 2021 fiscal release, GE Industrial had free cash flow (FCF) of $400 million. Furthermore, the company increased GE Industrial’s FCF outlook to a range of $3.5 billion to $5 billion (Page 2).
On top of this, General Electric also generated total revenues (GAAP) of $18.3 billion in Q2. That’s certainly nothing to sneeze at.
So, GE is in a solid fiscal position. However, it shouldn’t hurt to divest a non-essential business segment while taking in more than $1 billion. The sale of the nuclear power division to EDF hasn’t been finalized as of this writing. Still, French Finance Minister Bruno Le Maire seems to be on board with the potential transaction. Le Maire noted:
“We welcome this project. It shows our support to nuclear power and our will to reinforce our national (energetic) independence.”
All told, this deal should be a promising development — and it could provide some fuel for GE stock.
The Takeaway on GE Stock
When it comes down to it, anyone who holds GE stock should appreciate Culp’s vision for a slimmer General Electric.
True, it’s not a strategy that’s going to double the share price in a month, or even a year. But that’s perfectly fine. Even as the market tests your patience, you can prevail simply by staying in the trade.
This name earns an “A” in Portfolio Grader. Consider an investment in GE stock.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (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.
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