Investing in General Electric will produce shocking results?

If you are a value investor and looking for a bargain, one of the biggest companies which might be interested to look into is General Electric (GE).

General Electric is an American multinational conglomerate with a rich history as it was founded in 1892 by Thomas Edison, the same person who invented the first light bulb!

The company was also the first one to hit the $100 billion market cap in 1995.

The interesting thing is that GE operates in diverse markets through its subsidiaries in aviation, healthcare, power and renewables, transportation and others.

The stock was trading at $32 in the beginning of the year and is now trading at $12. That is more than 62% loss in just 8 months! This downfall came as the company’s former CEO, Jeff Immelt, made some bad decisions including selling NBCUniversal to Comcast "for a pittance" in the heart of the recession and making acquisitions in the oil universe near the peak in oil prices.

Over time GE developed a cash flow problem which eventually caused them to cut the dividend in half last November.
Furthermore, in April Moody’s also reported that the power segment within GE would pose a severe risk to the company’s credit rating and would downgrade GE’s rating if revenues in this area don’t improve.

To makes things worst, the company was also removed from the Dow Jones Industrial Average Index in June since it was no longer considered as a good representation of the U.S. economy, which is one of the main principles to be listed on the Dow index being a price-weighted index.

Should you invest?

I think that the end of a long decline for GE is finally upon us. From a fundamental perspective the stock is very cheap with a consensus forward P/E of 13.30. Warren Buffet was also reported saying that he would buy the stock when ‘numbers are right’ – this was back in January and since than the stock has dropped even more.

GE is also looking to spin off its health-care business as an independent company within the next year and they’re also going to sell their interest in Baker Hughes, a GE Company (oil subsidiary) over the coming years.

From a technical perspective the price seems to have now reached a support level around the area of $12 which was also the same level the stock moved to following the financial crises in 2008. Moving averages are showing that the stock is providing a good opportunity for a buy with the price crossing the 20 MA and testing resistance at the 50 MA.

2 - Comments

Havnevej Thorsminde - 31 agosto 12:43 Reply

Hi Christian, We had a double bottom back in april and june, but it never succeded. The price went further down and the price is below MA50 on W1 chart. Next big support area is around 10.50.   I am not bullish yet, because the price keep making lower lows and lower hights and MA50 has not been crossed yet.  Not even MA20 on W1 has been crossed yet, so I will wait till we see cross at MA20 and maybe MA50 before I go in   :-)  

Christian Buhagiar - 31 agosto 14:37 Reply

Hi Havnevej

Thanks for subscribing and for your comment. Good spot with regards to the double bottom although as you said it did not succeed. I am using daily charts hence why mine has already crossed over the 20 MA whereas you are using weekly charts. I prefer using daily however as you say it might be good to wait for a stronger cross like  50 MA which confirms the trend. Will wait and see how it goes 😊