Can General Electric Continue to See Rising Prices?

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 reported third quarter earnings on Friday morning, saying that profit and revenue fell while earnings topped expectations by a penny and the company boasted a record backlog of orders, according to Reuters. GE’s earnings rose at six out of seven of the company’s industrial businesses, but its shrinking financial arm took a bit of a toll on the company’s report. Shares are up in pre-market trading as the market is feeling optimistic about GE’s increased orders across its portfolio of industrial goods.

T = Technicals on the Stock Chart Are Strong

General Electric stock has been exploding to the upside in the last several years. The stock is currently trading at highs not seen for a number of years and looks poised to continue. 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

17.68%

0%

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

November Options

Flat

Average

December 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 very 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

4.10%*

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 been optimistic about General Electric’s recent earnings announcements.

* As of this writing

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

21.70%

30.92%

25.85%

13.69%

22.40%

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 moved higher in recent years and is currently trading near highs not seen for several years. Over the last four quarters, earnings have been increasing while revenues have been decreasing, however, investors have remained optimistic during recent earnings announcements. 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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