Does General Electric Support This Trend?

With shares of General Electric (NYSE:GE) trading around $25, 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 and many are essential in daily lives of consumers and companies around the world.

General Electric announced third-quarter 2013 operating earnings of $3.7 billion, or 36 cents per share, down 3 percent and flat respectively from the third quarter of 2012. “Our third-quarter results were very strong in an improving global business environment,” said GE Chairman and CEO Jeff Immelt. “Orders grew 19 percent with orders growth around the world. Total segment profit grew 12 percent, industrial margins grew 120 basis points in the quarter, and we are on track for planned margin expansion of 70 basis points for the year. GE Capital continues to perform well, and we finished the quarter with a Tier 1 common ratio of 11.3 percent, up 116 basis points.”

T = Technicals on the Stock Chart Are Strong

General Electric stock has seen higher highs and higher lows in the past several years. 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 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

19.96%

10%

9%

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

November Options

Flat

Average

December Options

Flat

Average

As of Wednesday, there is 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 small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

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?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

11.11%

3.45%

17.24%

8.72%

Revenue Growth (Y-O-Y)

-1.46%

-3.50%

-0.49%

3.57%

Earnings Reaction

3.52%

4.61%

-4.05%

3.47%

General Electric has seen increasing earnings and mixed 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

22.37%

29.28%

34.36%

16.43%

24.16%

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

Conclusion

General Electric is a globally diversified industrial, technology, and financial services company. A recent earnings release has investors excited about the company. The stock has seen higher highs and higher lows in recent years and is currently trading near highs for the year. Over the last four quarters, earnings have been rising while revenues have been mixed, which has left investors pleased about the company. Relative to its peers and sector, General Electric has been an average year-to-date performer. Look for General Electric to OUTPERFORM.

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