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Thursday, February 9, 2023

General Electric Stock Is an Aerospace Wager That’s Worth a Look

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Massive industrial conglomerate General Electric (NYSE:GE) has been through a number of dynasties, each marked by a CEO with a unique vision. The price of GE stock has reflected these vicissitudes, sometimes with gains and other times with gut-wrenching losses.

Image of General Electric (GE) logo on the top of a corporate building with clear blue sky in the background.

Source: JPstock/Shutterstock.com

Current CEO Larry Culp’s tenure, while not a new development anymore, is still accompanied by hope for better times ahead. Culp inherited a hot mess of a company that had fallen from grace in the wake of some capital-wasting investments.

Today, General Electric is a much different company than it was during former CEO Jeff Immelt’s turn at the helm. And the stock isn’t the stalwart safety play and robust dividend yielder that your father and grandfather relied on year after year.

General Electric is, for all intents and purposes, an aerospace company now. Has Culp thereby made the company better positioned for the future, or worse? Let’s excavate the facts and see what might be in store for this deeply transformed icon of a company.

A Closer Look at GE Stock

It’s safe to assume that the days of GE stock yielding a generous dividend are behind us now. The current forward annual dividend yield is a meager 0.59%, and with economic conditions saddled under the novel-coronavirus crisis, investors shouldn’t expect General Electric to increase the yield anytime soon.

In regard to the share price, GE stock once stood mighty at $55 at the turn of the millennium, but has printed a harrowing series of lower highs since that “bubble-icious” time. By Feb. 12 of this year, the stock was barely holding the $13 level.

The pandemic then brought the price of General Electric’s stock down to less than half of its 2020 peak. Currently it’s struggling to surpass the $7 price point as the bulls continue to fight a long, protracted battle for control of the trading flow.

Their viewpoint is that GE stock at $7 is a rare, generational opportunity. But is there ground for that argument? Perhaps a fundamental analysis will shed more light on General Electric’s growth prospects as we transition into 2020’s second half and the company transitions into an aerospace-market contender.

From Lamps to Planes

If you’re old enough, you might remember a time when General Electric was mostly associated with light bulbs and household appliances. If Jeff Immelt hadn’t made a number of misguided attempts to redirect the company’s focus, General Electric might still have the same business model that it had several decades ago.

Nostalgia is all fine and good, but investors have to work with the company as it stands today. And today General Electric chiefly operates in the aerospace industry. That focus was crystallized when the company recently sold off its biopharmaceutical business.

After taxes, fees and other expenditures, General Electric netted around $20 billion from that sale. It’s probably one of the smartest things that Culp has done so far as it provided the company with much-needed capital while allowing General Electric to narrow its focus.

A New and (Hopefully) Improved General Electric

The company also made the headlines when it jumped into the ventilator business. However, that’s a tiny sliver of General Electric’s revenue-influx pie. Therefore, GE stock isn’t necessarily recommended as a “ventilator stock,” if that’s a niche you’re eyeing.

So now, we’re left with a slimmer, trimmer General Electric that supplies aircraft engines for Boeing (NYSE:BA). It’s a bold and narrow bet, but not necessarily a bad one as the demand for air travel will recover at some point.

Plus, GE Aviation has a new CEO, David Joyce, whom RBC analyst Deane Dray rightfully calls “a top industry leader with strong commercial relationships.” A fresh start for GE Aviation, and for General Electric as a whole, could invigorate the company in 2020’s second half.

The Bottom Line

Absolutely none of the above suggests a moon-shot bull run for GE stock. It has never been that kind of investment, and it certainly isn’t now. Honestly, just getting back to pre-pandemic share-price levels will be a challenge.

But, as always, investing is a waiting game. General Electric’s stock might require an extra dose of patience and an added measure of understanding. General Electric is a profoundly different company than it once was. Yet, change can be a good thing and a lighter, more focused General Electric should fly high eventually.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarketsFinom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

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