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 and Honda (NYSE: HMC) might be two of the most diversified transportation companies in the world, but their product lines hardly overlap. Until now, that is. After ten years in the making, GE and Honda conducted a maiden flight of their first jointly developed sleek new business jet on Tuesday. It’s called the HondaJet, and it represents the Japanese company’s first foray into the aircraft business. For GE, it’s another example of how the company’s taking the long view to co-create what Honda refers to as “the world’s most advanced light jet” to date. Back in 2004, GE and Honda joined forces in a 50-50 split venture known as GE Honda Aero Engines to bring light, low-cost business jets to market. They setup shop right next to GE’s Aviation headquarters in Cincinnati to be close to crucial research taking place in advanced materials. Their aim was to co-develop a new-generation engine that would be situated above the wings of a small aircraft to reduce drag and cabin noise, and improve performance and fuel efficiency. That engine became known as the HF120, the smallest in GE’s portfolio.
T = Technicals on the Stock Chart are Mixed
General Electric stock has struggled to make significant progress. The stock is currently pulling back and may need time to consolidate. 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 between its rising key averages which signal neutral price action in the near-term.
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 |
18.33% |
60% |
58% |
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 |
|
| August Options |
Average |
Average |
| September Options |
Average |
Average |
As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral 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 had conflicting feelings about 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), Caterpillar (NYSE:CAT), and sector?
|
General Electric |
United Technologies |
Phillips |
Caterpillar |
Sector |
|
| Year-to-Date Return |
-5.96% |
0.25% |
-13.40% |
20.55% |
1.36% |
General Electric has been an average performer, year-to-date.
Conclusion
General Electric is a globally diversified industrial, technology, and financial services company. The stock has struggled to make significant progress and is currently pulling back. Over the last four quarters, earnings have been rising while revenues have been decreasing, which has produced conflicting feelings among investors. 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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