For decades, General Electric (NYSE:GE) was one of the most respected and renowned industrial companies in the United States. The stock was one of the most reliable performers in the market and consistently rewarded investors with dividend increases over the years. However, the company experienced a major rough patch beginning during the financial crisis of 2008 that eventually resulted in slashed dividends, several CEO changes, and the stock getting dropped from the Dow Jones Industrial Average. While many investors still perceive General Electric as a company in transition with a long way to go, the stock has quietly been one of the best performers in the market lately. It’s up over 38% in November and could be in for more upside over the next few months.
There are several reasons to consider adding shares of General Electric stock at this time, even after its latest rally. Let’s take a deeper look below at why it might be a good option for value investors.
Helping Doctors Treat Critically Ill COVID-19 Patients
When you think of companies that are helping in the fight against COVID-19, General Electric might not be the first name that comes to mind. However, the beauty of a company like General Electric is that it is well-diversified and generates revenue from several operating segments including aviation, power, renewable energy, capital, and healthcare. The company is receiving a surge in orders for COVID-19-related healthcare products, which should continue well into next year. GE has increased its global manufacturing capacity for critical medical equipment such as respiratory, x-ray, monitoring solutions, anesthesia, and point of care equipment that are helping doctors around the world manage the health crisis.
General Electric also recently made an exciting announcement about new healthcare technology that might end up saving lives as doctors deal with COVID-19 patients in critical condition. On November 23rd, GE Healthcare announced a new artificial intelligence (AI) algorithm that helps clinicians assess Endotracheal Tube placements. The algorithm assists doctors with making potentially life-saving adjustments and correctly assessing when a patient needs to be placed on a ventilator. Chest x-rays need to be evaluated as soon as possible, and GE Healthcare’s Critical Care Suite 2.0 is an industry-first technological advancement that can help to make that happen more quickly.
Another reason why General Electric stock might be worth a look at this time has to do with what their Aviation operating segment could look like in a post-vaccine world. Since General Electric made of 35% of its 2019 revenue from Aviation, it makes sense that its earnings have taken a big hit thanks to the pandemic. The company is a global provider of jet engines and their related components and services in commercial and military aviation markets. With COVID-19 significantly affecting the commercial airline industry, Aviation revenues dropped 39% year-over-year in Q3 for the company to $4.9 billion.
If you believe that the commercial airline industry will rebound quickly after a vaccine has been approved by the FDA, companies like General Electric could see a significant earnings boost as people start traveling again. It’s also worth noting that GE’s LEAP aircraft engine line could have better days ahead, as it is the exclusive engine for the Boeing 737 Max that was previously grounded indefinitely. The 737 Max should be flying again soon after the Federal Aviation Administration recently cleared it to fly passengers, which is even more good news for General Electric shareholders.
While General Electric is certainly seeing sharp earnings declines this year as a result of the pandemic, there are reasons for optimism that value investors should keep in mind. Thanks to the progress that the latest management team has made in turning the company around, the stock seems to have finally found a bottom. With margins in the non-aviation business segments seeing strong improvements in Q3, it appears the CEO Larry Culp has the company headed in the right direction. GE also could see strong improvements in Free Cash Flow as more operational efficiencies are achieved.
The bottom line here is that General Electric is an overlooked pandemic play that could end up being a staple of your portfolio. While there are always risks associated with buying a company that is vulnerable to cyclical demand and high leverage, the good headlines are starting to outweigh the bad ones for this iconic American company.
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Should you or shouldn’t you? Many investors are wondering if it’s time to take some profit. With so much uncertainty in the market, there can be a temptation to take your profits and run. That may or may not be a good strategy. It’s true there are some speculative stocks that are going up on nothing but faith, trust, and pixie dust. But there are other stocks that may still be good buys despite continuing to grow.
Since the sell-off caused by the novel coronavirus and subsequent locking down of large portions of the economy, the stock market has recovered nearly all of its losses. The Federal Reserve has done its part by pledging to keep interest rates low for as long as it takes. New housing starts are up. Unemployment is coming down. There seems to be a lot of fuel for market bulls.
Still, if you’ve been holding one of the stocks in this presentation, it may be time for you to take some of the profits you’ve made. Many of the stocks in this presentation are being downgraded by analysts. And that means that there is likely to be downward pressure on the stock price.
View the "7 Stocks It May Be Time To Take Profits On".