Where Will General Electric Go Next?

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 is in talks with France to refine guarantees on jobs, planned investments and access to nuclear technology under its $17 billion bid for Alstom SA’s energy assets ahead of a June 23 offer deadline, people familiar with the matter said. The negotiations are intended to help set GE’s plan apart from Siemens (NYSE:SI) AG’s proposal, said the people, who asked not to be identified because details are private. The measures include an independent audit to back up GE’s vow to create 1,000 industrial jobs in France as part of an Alstom deal, one person said. While GE doesn’t intend to increase the cash component of its offer, the U.S. company is willing to continue discussions with the government on several topics, including ensuring that French interests retain access to nuclear technology and a possible GE-Alstom partnership in railroad signaling, the people said.

GE also is willing to make commitments for future spending on France-based operations, one person said. France’s role is pivotal as political leaders seek concessions on issues such as local employment and the country’s energy independence. Steve Bolze, chief executive officer of GE’s power and water unit, and the lead negotiator, John Flannery, are in France for meetings this week, one person said. GE’s team “had good, constructive meetings with the French government again,” the Fairfield, Connecticut-based company said yesterday in an e-mailed statement. “We are making progress and are very confident in our proposal.” Alstom’s board has given preliminary approval to GE’s bid. The French company said it would consider other offers before the June 23 deadline, and Siemens unveiled details of a joint bid with Mitsubishi Heavy Industries Ltd. (7011) for Alstom’s energy operations on June 16.

T = Technicals on the Stock Chart Are Strong

General Electric stock has been trending higher over the past several quarters. However, the stock is currently pulling back and may need time to consolidate before heading higher. 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 signal neutral to bullish price action in the near-term.

GE

(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

19.09%

86%

84%

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

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an 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 very significant 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), Siemens (NYSE:SI), and sector?

General Electric

United Technologies

Phillips

Siemens

Sector

Year-to-Date Return

-4.60%

2.21%

-16.30%

-2.04%

-4.18%

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

Conclusion

General Electric is a globally diversified industrial, technology, and financial services company. The company is in talks with France to refine guarantees on jobs, planned investments, and access to nuclear technology under its $17 billion bid for Alstom SA’s energy assets. The stock has been trending higher over the past several quarters, but is currently pulling back. 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.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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