Should General Electric Be In 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 technology and financial services company. 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. It serves customers in more than 100 countries. Its segments include Energy Infrastructure, Aviation, Healthcare, Transportation, Home & Business Solutions and GE Capital. Through its segments, General Electric is able to offer its products and services to a growing amount of consumers and businesses around the world.

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T = Technicals on the Stock Chart are Strong

Over the last decade, General Electric has seen an overall downtrend in its stock. Within the last few years, the stock has been trying to gain some ground and has made significant progress. 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 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

20.15%

50%

53%

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

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

8.57%

50%

-17.14%

-6.45%

Revenue Growth (Y-O-Y)

3.58%

2.80%

2.47%

-8.22%

Earnings Reaction

3.47%

-3.41%

0.35%

-1.49%

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

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P = Average Relative Performance Versus Peers and Sector

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

General Electric

United Technologies

Siemens

Koninklijke Philips Electronics

Sector

Year-to-Date Return

9.89%

13.43%

-4.43%

9.89%

8.66%

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

Conclusion

General Electric is an established company with a long history of providing products and services to consumers and businesses across the globe. The stock has been in a long-term downtrend but has gained significant ground in recent times. However, earnings and revenue have sent mixed vibes to investors. Relative to its peers and sector, General Electric is an average performer. Look for General Electric to OUTPERFORM.

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