At a glance, the roughly 10% rally of General Electric (NYSE:GE) stock over the last month looks attractive. But that’s hardly the case. In fact, while many investors have had luck bottom-fishing in the stock market, GE may very well be one to avoid.
The company has a lousy chart, poor fundamentals and exposure to weakened parts of the economy. Let’s look at why investors may want to stay away from General Electric at this time.
GE Stock Has Poor Fundamentals
I get it; 2020 is a crazy year, and that makes it difficult for companies. However, investors have a choice about whether to stick with companies that are doing well or buy the shares of those that are oversold and struggling.
GE is one of the latter stocks. While this name obviously can’t drop very much in dollar terms (although any investor could lose all of his or her money in the stock), GE just isn’t tempting to me.
Analysts, on average, expect its sales to fall 17% this year to $79 billion. They also expect its earnings to plunge more than 80% to just 10 cents per share. If that’s the case, it will be the company’s third straight year of revenue declines, as this year’s $79 billion forecast is about 35% below its 2018 revenue.
Further, GE has reported a loss of more than $4.9 billion in net income in each of the last three years, as its bottom line continues to struggle.
At the end of the day, General Electric will likely avoid a liquidity situation thanks to good moves by its management. But avoiding bankruptcy isn’t enough of a reason for me to want to buy its shares. I’d rather buy the stock of a company that’s growing rapidly thanks to non-cyclical trends.
The Charts Are Weak
While GE is up about 25% from its March lows, that performance badly lags almost all other stocks. Boeing (NYSE:BA) has almost doubled from its low, while the S&P 500 is up nearly 50%. Honeywell (NYSE:HON) has rallied 53% from the bottom.
Although GE’s rally seems decent, it has lagged considerably compared to virtually any other group in the market.
Of course, the charts reflect that weakness, too. While GE stock is staying above its 20-day and 50-day moving averages, as well as its $6.50 support, there’s very little else that’s bullish about its performance.
If General Electric falls below $6.50, then sellers may be able to push the shares lower, possibly down to its $5.50 lows. On the other hand, the bulls will gain considerable momentum if the stock closes above $8 and then reclaims its 200-day moving average.
For now, though, I’d rather bet on a stock whose technicals or fundamentals are working in its favor. GE has neither.
GE’s Business Lacks Momentum
One of GE’s biggest issues is that it has no momentum. I don’t necessarily mean momentum on the chart — although it’s lacking that too — but momentum in its business.
Its industrial free cash flow came in at negative $2.21 billion in its most recent reported quarter. That missed analysts’ average estimate of negative $2 billion and was almost double last year’s $1.22 billion outflow. The novel coronavirus lowered GE’s free cash flow by about $1 billion.
While GE’s healthcare unit grew during the quarter, other areas of its business continue to contract. For instance, its aviation unit, which was once a non-cyclical and dependable business, is suffering tremendously right now.
Not only have the headaches at Boeing impacted GE, but lack of demand for new aircraft is now a problem. As is well-known, airlines are having a great deal of trouble. As a result, they’re now trying to reduce the number of airplanes they have. Lack of demand for new aircraft is not positive for GE.
Delta Air Lines’ (NYSE:DAL) management recently predicted that it would be years before demand for flying comes back. For GE, that is not good news.
If the S&P 500 continues to climb, General Electric may very well be pushed higher. But there are many great stocks to buy out there, so I’m not going to bet on GE at this time.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.