Is General Electric a Good Portfolio Play?

With shares of General Electric (NYSE:GE) trading around $26, is GE an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

General Electric is a diversified industrial, technology, and financial services company that operates worldwide. The products and services of the company range from aircraft engines, power generation, water processing, and household appliances to medical imaging, business and consumer financing, and industrial products. General Electric’s segments are Energy Infrastructure, Aviation, Healthcare, Transportation, Home & Business Solutions, and GE Capital. General Electric is a leading provider of a wide range of products, many of which are essential in daily lives of consumers and companies around the world.

General Electric and Siemens (NYSE:SI) defended rival proposals to buy the power arm of Alstom on Tuesday, assuring France that its prized engineering firm would emerge strengthened, including in its remaining transport business. Top executives for both groups told lawmakers their plans were good for Alstom, for France, and jobs, as they strived to address government concerns over the fate of the once bailed-out company and the nation’s wider industrial footprint. During a parliamentary hearing, the chairman of Siemens France, Christophe de Maistre, said the German group hoped to submit by June 16 at the latest a formal asset swap offer that would create two European industry champions, one in power around Siemens, the other in rail around Alstom. GE Chief Executive Jeff Immelt, meanwhile, spoke in defense of his group’s 12.35 billion euro ($16.9 billion) bid for Alstom’s power arm.

T = Technicals on the Stock Chart Are Strong

General Electric stock has been trending higher over the past several quarters. The stock is currently trading near highs for the year and looks set to continue this path. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, General Electric is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of General Electric options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

General Electric options

15.14%

10%

8%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of Wednesday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on General Electric’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for General Electric look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-11.76%

7.19%

11.11%

3.45%

Revenue Growth (Y-O-Y)

-8.31%

1.89%

-1.46%

-3.5%

Earnings Reaction

1.68%

-2.27%

3.52%

4.61%

General Electric has seen increasing earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with General Electric’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has General Electric stock done relative to its peers – United Technologies (NYSE:UTX), Phillips (NYSE:PHG), and Siemens (NYSE:SI) — and sector?

General Electric

United Technologies

Phillips

Siemens

Sector

Year-to-Date Return

-4.76%

2.09%

-14.60%

-2.98%

-4.06%

General Electric has been an average relative performer, year-to-date.

Conclusion

General Electric is a globally diversified industrial, technology, and financial services company. The company and Siemens defended rival proposals to buy the power arm of Alstom on Tuesday. The stock has been trending higher over the past several quarters and is currently trading near highs for the year. Over the last four quarters, earnings have been rising while revenues have been decreasing, which has left investors pleased. Relative to its peers and sector, General Electric has been an average year-to-date performer. WAIT AND SEE what General Electric does next.

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