GE stock is up big from the lows, but business is just starting to come back in a meaningful way.
General Electric(NYSE:GE) remains a hotly contested name. The bears hate this company, while the bulls see opportunity in GE stock. To be fair, both groups have merits to their argument.
For bears, General Electric has seen a large decline in its financial health over the years. Its balance sheet has eroded, while pension obligations and poorly timed deals have hurt it. Growth has slowed considerably and that was true even before the novel coronavirus.
GE stock was a sick patient, but it’s recovering now — it’s not a dying patient.
That’s precisely what the bulls see. They know that the company made ill-timed deals and that the prior management team put the company in a horrible position. That’s certainly true vs. its competitors likeHoneywell(NYSE:HON),United Technologies(NYSE:UTX) and3MCo(NYSE:MMM).
However, they also see that CEO Larry Culp is making the necessary moves to bring GE stock back to some form of respect among the investment community. Cash flows are improving and the losses are being stemmed. A recovery in the global economy and aviation space should lead to much better results for the company. They are focused onwhat GE is doing, not what it has done.
The Big Boom
General Electric is genuinely turning things around. I mean, how could its businessnotimprove as the global economy rebounds from the pain of Covid-19? If we’re lucky, this will be a multi-year recovery. Not just for GE stock, but for a number of companies and industries.
I think a lot of U.S. investors are forgetting what’s happening in the rest of the world. For instance, Europe is juststarting to open back up. India is battling hard against coronavirus. Australia’s borders remain closed (although they are doing fine with the virus).
There’s beenmore deaths in 2021due to Covid-19 than in all of 2020. That likely comes as a surprise to some. As does the fact that, until the last few days, roughly 500 Americans a daywere still dying from the coronavirus.
Yet a trip to the airport or to a local downtown would have one thinking we’re in a boom-time. And wearein a boom — one that’s likely to persist for quite some time as we return to normal.
But my point is simple: The rest of the world is not yet at this boom. While it’s coming, it’s not here yet and I think that may be the underlying bull case over the coming years.
The General Electric Recovery Plan
For GE stock, the global rebound will hopefully be a big opportunity. As travel increases, so does demand for aviation, which is GE’s largest business unit. In fact, its two largest business unitswere profitable last quarter, while the others made year-over-year improvements.
Boeing(NYSE:BA) is getting things back on track with its 737 MAX (now approved for flying) and demand is returning. That will bode incredibly well for General Electric.
The most recent quarter was quite mixed, with GE beating on earnings with 3 cents per share in profit, but missing on revenue as sales fell about 16% year over year. GE also had free cashoutflowof $845 million. However, that was vastly better than expectations of $1.3 billion and much better than year-ago results of a $2.2 billion deficit.
Further, there were enough positives in the quarter for management to say it expects full-year industrial free cash flow of $2.5 billion to $4.5 billion.
Is GE firing on cylinders? No, not exactly. But it’s turning a major corner and we’re about to see those results show up in the quarterly reports.
Missed Chance in GE Stock?
Click to EnlargeSource: Chart courtesy ofTrendSpider
Did you miss your chance to buy GE stock at $6? Short of another global panic, yes.
Shares have been trending higher for several months, although the $14.40 area was resistance in early March. This level was again resistance in late May and early June.
With a nice reset back to the short-term moving averages, let’s see if GE stock can muster up the strength to break out over this area.
A move over $14.40 could put a run over $15 to $16 in play. Preferably, we’ll get a move up to the $16.75 area, which was a major breakdown spot a few years ago.
On the downside, a break of the 50-day moving average could put the $12.50 to $13 zone in play, followed by $12.25.