Can General Electric Continue This Trend?

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.

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 Mixed

General Electric stock has seen a consistent uptrend extending back so early 2009. The stock is trading very near multi-year highs but still has a ways to go to be where it once was. 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 tangling 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

20.94%

3%

0%

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

Steep

Average

September 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 very small 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 sentiment 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, United Technologies (NYSE:UTX), Philips (NYSE:PHG), Siemens (NYSE:SI), and sector?

General Electric

United Technologies

Philips

Siemens

Sector

Year-to-Date Return

11.86%

19.01%

6.10%

-4.25%

8.42%

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

Conclusion

General Electric is a global diversified industrial, technology, and financial services company. A segment of the company, GE Capital, is now deemed as a non-bank systemically important financial institution and subject to Dodd-Frank regulations. The stock has been on a consistent run higher but still has a ways to go if it wants to be where it once was. Over most of the last four quarters, General Electric has seen rising earnings and revenue figures, however, earnings reports have resulted in mixed sentiment by investors in the company. Relative to its peers and sector, General Electric has been a year-to-date performance leader. WAIT AND SEE what General Electric does this coming quarter.

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