If you believe the analysts on Wall Street, General Electric (NYSE:GE) is a STRONG BUY, BUY or HOLD even now. So if you listened to them at any point over the past two years you would have lost more than half your money. Even if GE stock was downgraded by all the major analysts today, that wouldn’t help those who already own the stock — those who listened to the analysts all along.
It is shocking to see so-called experts recommend a stock in this much disarray as a strong buy. GE is now but a sliver of what it once was, yet the average analyst target is still around $13 — about double current price. GE stock is down 60% in a year. True, 2018 has been a tough one for all stocks thanks to fears of tariff wars. But the indices are still positive. So GE stock is falling on its own merits — or lack thereof.
Clearly. there is a disconnect between opinion and reality. I admit that I am not an expert on GE and that is part of my point today. I come into this writeup with no prior baggage about the company.
When a stock falls this far for this long, we need to know if it’s a broken stock or a broken company. GE is both. And the headlines from the last two years are those we usually see in movies from Hollywood. So management is distracted during a critical period of time when they need to concentrate on righting the ship.
We now know GE made mistakes with asset management and mistiming acquisitions and divesting of them. Meanwhile, they rotated through three CEO’s in a short period of time and each time the company has to refocus in a new direction. The final straw was them effectively killing its 112-year-old dividend.
So is this rock bottom for General Electric stock?
Trading GE Stock
Clearly others have wrongly tried to time the bottom for months and even here it’s a complete guess. There is no accurate way to perceive GE stock value as the picture is muddled from all the changes. I know smarter people would disagree… but so far they’ve been wrong.
So investors who want to go long GE stock here should do it for a trade only — not an investment thesis. At best GE is a gamble filled with hopium that some day, management could figure out how to streamline the business so it would be profitable again.
This is a sentimental company. GE is an American icon and it is sad to see it in such disarray. So I can’t blame investors who want to bet on its recovery. For those, it makes sense to just buy it now and hold it for the really long term. This way they don’t have to sweat the weekly gyrations as they are in it for the really long haul.
Otherwise, trade GE stock based on short term charts. This week it is rebounding off a low but headed into resistance through $8.30 per share. It is likely to stall there. If the general markets rally next week on good G20 meeting outcomes then GE could reset for another 80 cent rally. Nevertheless, the 30 minute chart shows zones of resistance where bulls have to rest to reset footing so the rally could unfold in bursts.
These are unemotional tactical trades that should have tight stops. There is an argument to be made that it’s probably not worth the effort to try to be tactical with GE stock. The headlines are too disruptive. This morning’s note about the risks in its insurance legacy business is a clear example of that.
The Bottom Line for GE Stock
If GE is rallying, then the markets are also rallying so to me it makes more sense to just trade the indices like the Power Shares QQQ (NASDAQ:QQQ). At least there I’d be betting on healthy growth companies like Alphabet (NASDAQ:GOOGL), Amazon ( NASDAQ:AMZN) or Apple (NASDAQ:AAPL). These have broken stocks but very healthy companies so they have a great chance of rebound.
Click here for more of my market thesis and get an ongoing free copy of my weekly newsletters. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.