It’s no longer a widows-and-orphan stock. That ship sailed long ago for General Electric (NYSE:GE). But for other types of investors desiring capital appreciation potential, GE stock is ready to bring goods things to life. Let me explain.
For years GE was the last original blue-chip investment within the bellwether Dow Jones Industrials. It was also the world’s most valuable company. In that way, GE wasn’t unlike today’s Apple (NASDAQ:AAPL), albeit a market capitalization never close to today’s staggering near $2 trillion price tag.
Unlike a much more volatile Apple stock, GE was also never meant to keep investors on edge. Its income stream was as consistent as they came. Shares were a dividend aristocrat until 2017, and considered an investment for all ages in need of secure payouts on a quarterly basis.
But the once-mighty conglomerate was never quite the same after the 2008 – 2009 financial crisis. Ultimately, there were one too many business missteps into overly-competitive markets. Burdensome debt and unprofitable units proved GE’s undoing from the Dow, having to pull the plug on its dividend and say goodbye to its ‘buy and hold forever’ fan base.
GE’s Turing Around
From its peak just over four years ago shares are down 78%. And since hitting its May low, which challenged the GE’s multi-generational 2009 financial crisis bottom, General Electric is up just 18%. That pales next to the Dow’s 53% gain off its own low, not to mention the leading Nasdaq’s climb of roughly 70% and numbingly routine record highs.
But GE stock is more than ready to begin the process of bringing ‘some’ good things to life for investors.
To be certain, GE isn’t going to sit well with widows and orphans anytime soon. Already a turnaround play, extraordinary financial hardships have hit the company in 2020. General Electric’s aviation business ties to troubled aerospace customer and Dow constituent Boeing (NYSE:BA), then compounded by the Covid-19 pandemic’s impact on the industry, has been an acute Achilles Heel.
GE’s late July earnings announcement offers some proof of this year’s setbacks.
Among other less-than-pleasant facts, sales declined year-over-year by 24%, net income swung to wider-than-expected loss wider-than-expected loss of 15 cents per share, margins were squeezed, and free cash flow was mired in red ink of $2.1 billion. But to focus on the negative and write shares permanently off like former Dow stocks National Lead or Tennessee Coal & Iron would be a mistake.
InvestorPlace’s Luke Lango agrees. Luke recently offered a simple but compelling argument for GE shares to nearly double in price to $12 through next year. Bottom-line, if a coronavirus vaccine makes its way into the market sooner rather than later, which is looking more likely, the provided economic normalization stands to be a big-time benefit for General Electric’s industrial end-markets.
Despite some of this quarter’s weak-sounding results, GE’s CEO Larry Culp was rightfully positive. Revenues did beat Street views. Recoveries in the company’s aviation and healthcare businesses also appear to be underway. Further, based on business conditions exiting the quarter, the company believes it can achieve positive industrial cash flow in 2021 while accelerating General Electric’s transformation towards long-term, profitable growth.
GE Stock Monthly Price Chart
Source: Charts by TradingView
On the monthly view of General Electric, Covid-19’s immediate impact sent shares ripping cleanly through a bear flag in March during the broader market’s history-making correction. The price action only grew worse for the company’s investors into May as the stock sank towards its lowest levels since March 2009.
The good news is GE eventually found its own meaningful bottom. A lower-low variation of a double-bottom roughly 18 months in duration was formed during May and confirmed in June as the stock traded above a doji high of $7.48.
In isolation, the price action is optimistically bullish. But with stochastics out of position at the time, a rally was more suspect than otherwise. And after trading up about 15%, shares in fact have languished back inside May’s candlestick for the past two months. Worse, GE is off $1 at $6.47. It’s not time to be discouraged though.
Technically, General Electric’s secondary indicator has firmed up during the stock’s retreat. As the chart reveals, stochastics has put together a positive divergence relative to the December 2018 pivot low. More compelling, a bullish crossover has now formed after dipping marginally into oversold territory.
GE stock is well-positioned for upside, possibly even Luke’s $12 price target. Moreover, today’s investors are being offered a very attractive risk versus reward proposition on the price chart. The pattern’s low of $5.47 implies downside risk of $1 compared to upside potential of just over $5.50 in shares. Now that sounds and looks like a situation worthy of bringing good things to life for investors.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. Investment accounts under Mr. Tyler’s management do not own any securities mentioned in this article. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits
