Will Recent News Affect General Electric?

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 and many are essential in daily lives of consumers and companies around the world.

General Electric announced that it will close an electrical capacitor facility in northern New York that employs around 200 persons. The company advised workers that it will follow through on plans announced in September to shut its plant 45 miles north of Albany, and transfer operations to an existing manufacturing site in Clearwater, Florida. The plant located close to the Hudson River will not close prior to September 2014.

T = Technicals on the Stock Chart Are Strong

General Electric stock has been trending higher over the past several quarters. 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 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

17.81%

0%

0%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

December Options

Flat

Average

January 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 small 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 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), Siemens (NYSE:SI), and sector?

General Electric

United Technologies

Phillips

Siemens

Sector

Year-to-Date Return

27.78%

36.02%

34.06%

21.87%

30.93%

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

Conclusion

General Electric is a globally diversified industrial, technology, and financial services company. The company announced that it will close an electrical capacitor facility in northern New York that employs around 200 persons. The stock has been trending higher over the past several quarters and is currently trading near highs for the year. Over the last four quarters, earnings have been rising while revenues have been decreasing, which has produced conflicting feelings among iinvestors. Relative to its peers and sector, General Electric has been an average year-to-date performer. WAIT AND SEE what General Electric does this quarter.

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