Many investors keep General Electric (NYSE:GE) on their radar. They know GE stock well from its glory days and see it now trading in the single digits. At some point, there has to be value, right?
Unfortunately, that’s a harder case to prove.
General Electric has done a lot to overhaul its organization. After several management shake-ups, the company is finally making strides in the right direction. The problem is, even under normal operating conditions, GE had its work cut out for it.
The fallout we’ve seen with Boeing (NYSE:BA) over its 737 MAX didn’t help, while the novel coronavirus has only made matters worse. Because General Electric is struggling so much, I don’t view the stock as an opportunity, even in the single digits.
Sell GE Stock Into Strength
Even with the coronavirus wreaking havoc on the global and U.S. economies, there are companies doing well while some are fighting for their financial lives.
Video game companies like Take-Two Interactive (NASDAQ:TTWO) and Activision Blizzard (NASDAQ:ATVI) are doing well. Essential retailers like Target (NYSE:TGT) and online e-commerce plays like Amazon (NASDAQ:AMZN) have strong demand. Entertainment plays like Netflix (NASDAQ:NFLX) have surged, as have back-end plays like Fastly (NYSE:FSLY) and Twilio (NYSE:TWLO).
Industrial stocks, automakers, airlines, energy, cruise ships and other services and economically sensitive entities are not doing well. And what industries does GE serve? You guessed it, friends.
General Electric was a solid “reopening America” trade. As airline stocks flew higher and as Boeing roared back to life, it only made sense that GE stock would come back to life as well.
A look at the chart reveals several concerns. Mainly, that GE stock is back below both its 23.6% retracement and 20-day moving average after being rejected by the 38.2% retracement.
If shares are just consolidating, look for a break over downtrend resistance (blue line), followed by the stock reclaiming the 20-day moving average and 23.6% retracement. That puts $8 to $8.50 in play, followed by the 200-day moving average.
On the downside, a break of $7 puts the 50-day moving average on the table. Below that and the $6 level is possible. Bulls will need to see this level hold or otherwise risk a retest of the lows at $5.50.
Currently, GE stock is up less than 30% from the lows. Given the triple-digit rallies we’ve seen in beaten down names, and even the 43% rally in the S&P 500, General Electric’s rebound is pitiful.
Bottom Line on General Electric
The bottom line on GE is simple: sell into strength if you’re long and avoid the name if you have no current exposure.
Earlier we outlined industries, trends and stocks doing well. Why not put money to work in these areas? Or if investors are too tempted by the beaten down stocks, why consider one that is badly lagging its peers and is even lagging the overall market?
When General Electric reported its most recent results, the company missed on earnings and beat on revenue. That’s despite a roughly 25% year-over-year decline in sales. More importantly though, free cash flow took a hit.
Industrial free cash flow came in at negative $2.21 billion. That was almost double last year’s deficit of $1.22 billion and worse than analysts’ estimate for a $2 billion fall. Management said free cash flow suffered a $1 billion hit from Covid-19, which isn’t all that promising given that the numbers continue to rise.
It gets worse, too. CEO Larry Culp expects GE to generate negative cash flow for the year, and sees an outflow of $3.5 to $4.5 billion in the second quarter. That was far worse than the consensus estimates looking for an outflow of $2 billion.
Even with cost-saving measures taking place, I’m finding it difficult to get bullish on this stock. For now, continue to avoid.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.