Can General Electric Power Your Portfolio?

With shares of General Electric (NYSE:GE) trading around $23, 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 include: Energy Infrastructure, Aviation, Healthcare, Transportation, Home & Business Solutions and GE Capital. General Electric is a leading provider of a wide range of products and many are essential in daily lives of consumers and companies around the world.  So long as economies exist, General Electric will continue to see a rise in profits by providing key products on an ongoing basis.

T = Technicals on the Stock Chart are Mixed

General Electric stock has experienced a modest rise since establishing lows during the 2008 Financial Crisis. The stock is currently trading in a range extending back to the beginning of the year. 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 slightly above its tangled key averages which signal neutral 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

22.25%

43%

40%

What does this mean? This means that investors or traders are buying a 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

Steep

Average

August Options

Steep

Average

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

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

17.24%

8.72%

50.00%

-17.14%

Revenue Growth (Y-O-Y)

-0.49%

3.57%

2.79%

2.46%

Earnings Reaction

-4.05%

3.47%

-3.41%

0.35%

General Electric has seen rising earnings and revenue figures over most of the last four quarters. From these numbers, the markets have had mixed feelings about General Electric’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

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

General Electric

Siemens

United Technologies

Philips

Sector

Year-to-Date Return

9.98%

-6.03%

15.38%

3.69%

8.94%

General Electric has been a relative performance leader, year-to-date.

Conclusion

General Electric provides a number of industrial products and services to companies and consumers in varied industries worldwide. The stock has experienced a modest run over the last few years and but has been trading sideways for most of this year. Over most of the last four quarters, earnings and revenue figures have been rising, however, investors in the company have expected a little more. Relative to its peers and sector, General Electric has been a year-to-date performance leader. WAIT AND SEE what General Electric does this remaining quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.