Should General Electric Be in Your Portfolio?

With shares of General Electric (NYSE:GE) trading around $24, is General Electric 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.

General Electric (GE Capital) and American International Group (NYSE:AIG) have been designated by the Financial Stability Oversight Council as being non-bank “systemically important financial institutions.” What will change? Since both companies are deemed to potentially pose a threat to a financial system in crisis, they are now subject to regulation under the Dodd-Frank financial reform act, which means the companies will face government scrutiny. As countries continue to grow, 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 Strong

General Electric stock been rising over the last several years. The stock is now trading slightly below highs for the year so it may spend some time at current prices. 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

17.45%

10%

9%

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

Put IV Skew

Call IV Skew

September Options

Flat

Average

October 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 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 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

3.45%

17.24%

8.72%

50.00%

Revenue Growth (Y-O-Y)

-3.50%

-0.49%

3.57%

2.79%

Earnings Reaction

4.61%

-4.05%

3.47%

-3.41%

General Electric has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings 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

14.98%

29.30%

21.21%

1.35%

16.39%

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

Conclusion

General Electric is a global diversified industrial, technology, and financial services company. GE Capital, a segment of the company, is being deemed as a non-bank systemically important financial institution and subject to regulations. The stock has been steadily rising in recent years and is now trading near highs for the year. Over the last four quarters, investors in the company have had mixed feelings as earnings have been rising while revenue figures have been mixed. Relative to its peers and sector, General Electric has been an average year-to-date performer. Look for General Electric to OUTPERFORM.

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.