<p>This has been a difficult year for investors in General Electric (NYSE: GE). To date, the GE share has decreased by approximately 35%.
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Many shareholders are now wondering whether the Group can cope with the current disruption in its portfolio of companies.
It is still too early to say what the full effects of the COVID-19 outbreak will be on our economy as well as General Electric. However, investors may want to wait several weeks before committing new capital to the company’s shares. Here’s why.
The global pandemic and the GE stock
The conglomerate currently reports revenues in five main segments: Power, Renewable Energy, Aviation, Healthcare and GE Capital. Conglomerates can be defined as large diversified companies with unrelated activities in their portfolios.
The viral pandemic is likely to affect each GE business somewhat differently. On March 23, Chairman and CEO Henry Lawrence “Larry” Culp, Jr. an update on the steps the company would take during this period.
First of all, he said he would waive his salary for the rest of 2020. Then, after emphasizing the fact that “the aviation industry feels the global pandemic most acutely”, he announced that GE Aviation must reduce about 10% of the total American workforce.
Culp added, “GE Aviation is not alone in the challenges it faces. Every GE company and company needs to adapt. GE Healthcare manages, for example, by reducing the demand for certain equipment because elective procedures are postponed or interrupted around the world. ”
And on April 2, the group announced that they would continue half of the engine manufacturer’s staff in the aviation segment.
Management has also reported that during the viral outbreak, GE Healthcare is working with hospitals in Europe in their efforts to better manage their patients’ needs. Similarly, doctors in China have used CT and ultrasound scans in their fight against the disease.
In other words, the company has openly acknowledged that these are quite difficult times full of question marks, not only for GE but also for the United States and other countries around the world.
What you can expect from Q1 revenue
The company will publish Q1 metrics on April 29. In January, GE reported solid quarterly results for Q4 2019, which exceeded analysts’ expectations. Revenue was $ 26.24 billion and EPS was 21 cents.
Aviation led the way, as its revenues increased by 6% compared to the same quarter last year. Orders had also increased by more than 20%. Current GE shareholders would be familiar with the fact that aviation is called the company’s ‘crown jewel’. It mainly builds and services aircraft engines. It accounts for over a third of the total business. Therefore, any decline in the segment would be a concern for the GE share price.
GE’s Industrial Free Cash Flow (FCF) is a key figure for many analysts and shareholders. During the fourth quarter, the number amounted to $ 2.3 billion for 2019 and topped management’s own guidance of between $ 0 and $ 2 billion.
A year ago, Culp had called the rest of 2019 a “recovery year” and had called for patience during what was presented as a multi-year turnaround.
Therefore, many investors were encouraged by the result during the fourth quarter. They felt that the troubled company could really turn around.
What a difference several weeks have made in the outlook for the rest of the year. In its press release on March 23, Culp called GE’s financial position “sound”. However, it is still from some how revenue and revenue come.
For the company to turn its fortune around, debt must decrease and cash flow should increase. Now things do not look rosy or clear.
Therefore, if you are not yet an investor in GE stocks, you may want to wait until the results are released in a few weeks. The shares are probably volatile during the reporting period.
GE Stock price action calls for caution
Thomas Edison founded General Electric in 1878. And since then it has been one of the most important companies in the United States. Yet the new century has been paved with difficulties for management, employees and shareholders.
An article in the Wall Street Journal from 2018, “GE Powered the American Century – Then It Burned Out” as well as many academic studies show how both the company and its share price fell especially during the last two decades.
For example, in August 2000, GE shares swung to a full-time high of about $ 60. In March 2009, they were about $ 5.70.
In 2016, the GE share saw a then high value of $ 33, but problems for the General Electric share price began again in 2017. Losses in the GE Capital unit and the strong sales and profitability in General Electric’s Power operations put pressure on the share.
The market decline in 2018 pushed the shares once again to single digits and in December 2018 the price was low at 6.66 dollars.
Recently, the GE stock reached a 52-week high of $ 13.26 (February 2, 2020). But on March 18, it hit a 52-week low of $ 5.20. Now the price is about 7 dollars.
In the coming weeks, although long-term investors want the GE stock to stay above $ 10, short-term traders are likely to keep it between $ 6- $ 8.
GE is a broad and actively traded stock. The average daily volume is approximately 110 million shares. And its beta is about 1.3. So the price is probably about 30% more volatile than the wider market. Therefore, investors should be ready for large price fluctuations in GE shares.
The conclusion on GE stock
Even before the recent economic uncertainty hit our shores, it proved difficult for GE equities to regain long-term investor confidence. Therefore, the upcoming Q1 metrics, as well as any updated guidance for the rest of the year, are now quite important. If 2020 becomes a year when free cash flow drops significantly, its turnaround may take much longer than originally thought.
If you already own GE shares, you may want to continue the price and maintain your position. Alternatively, if you are an experienced investor in the options market, you can also consider using a covered call strategy, with approximately two-month time horizon, ie on May 15. Such a covered conversation position would offer you some disadvantages.
Finally, investors who want some GE exposure but are nervous about the outlook for the year may consider buying an exchange-traded fund (ETF) that holds GE shares. Examples of such ETFs could be the Industrial Select Sector SPDR Fund (NYSEARCA: XLI), the First Trust Global Wind Energy ETF (NYSEASRCA: FAN) or the Global X Autonomous & Electric Vehicles ETF (NASDAQ: DRIV).
Tezcan Gecgil has worked in investment management for over two decades in the United States and the United Kingdom. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) degree. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially likes to cancel weekly calls for income generation. At the time of writing, Tezcan Gecgil had no position in any of the above securities.