Is An ‘Outperform’ in General Electric’s Future?

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 on Thursday announced first-quarter 2014 operating earnings of $3.3 billion, with operating earnings per share of 33 cents, down 15 percent from the first quarter of 2013. Excluding the 2013 NBCUniversal impact and restructuring and other charges, operating earnings per share was up 9 percent from the year-ago period. GAAP earnings from continuing operations were $3 billion, with earnings per share of 29 cents, down 17 percent. Revenues were $34.2 billion for the quarter, down 2 percent from the year-ago period.

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 poised to continue. 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.

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

16.68%

4%

2%

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

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of Thursday, there i 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 small 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

2.18%*

-2.27%

3.52%

4.61%

*As of this writing.

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

-4.6%

4.23%

-6.82%

-2.84%

-1.5%

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 announced first-quarter results that left investors pleased. 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. Relative to its peers and sector, General Electric has been an average year-to-date performer. WAIT AND SEE what General Electric does this 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.

Don’t Miss: 10 Big Companies Paying the Least Taxes.