Will General Electric Move Higher?

With shares of General Electric (NYSE:GE) trading around $27, 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 on Monday continued its push to expand its healthcare operation, agreeing to acquire certain life science assets of Thermo Fisher Scientific for $1.06 billion in cash. The deal includes Waltham, Mass.-based Thermo Fisher’s cell culture, gene modulation, and magnetic bead businesses. The units, part of Thermo Fisher’s analytical technologies segment, generated combined revenue of about $250 million in 2013. Fairfield, Conn.-based GE has been seeking to refocus its sprawling collection of businesses since the economic downturn, and looking to divest its consumer finance operations and to grow in healthcare and energy. The company said the Thermo Fisher units would be folded into its $4 billion-sales GE Healthcare life sciences business, giving it a more complete portfolio of tools used for cell biology research, cell therapy and for the manufacture of new biological medicines and vaccines.

T = Technicals on the Stock Chart Are Strong

General Electric stock has been trending higher over the past several quarters. However, the stock is currently trading sideways. 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

22.61%

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

February Options

Flat

Average

March 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 significant 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?

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 decreasing revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about with General Electric’s recent earnings announcements.

P = Weak 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

-2.19%

-0.03%

0.79%

-2.09%

-1.88%

General Electric has been a poor relative performer, year-to-date.

Conclusion

General Electric is a globally diversified industrial, technology, and financial services company. The company on Monday continued its push to expand its healthcare operation, agreeing to acquire certain life science assets of Thermo Fisher Scientific for $1.06 billion in cash. The stock has been trending higher over the past several quarters, but is currently trading sideways. 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 a poor year-to-date performer. WAIT AND SEE what General Electric does this quarter.

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