Is It Time To Start Buying Beaten Up General Electric (GE) Stock?
General Electric Company (NYSE:GE) didn’t get invited to this year’s stock market party, but that might make GE stock worth a second look.
Source: Anthony Quintano via Flickr
While the S&P 500 is up nearly 12% so far in 2017, GE stock is down more than 20%.
That is pretty rare. Normally, when the S&P 500 has an up year, so too does General Electric stock.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
So what does it mean when this trend breaks? What is the trading implication when the S&P 500 is up on the year and GE is down?
Historically, it’s a great time to buy GE stock. In 2014, GE stock fell 10% while the S&P 500 rallied more than 10%. In 2015, the S&P 500 didn’t have a great year, but GE stock soared almost 25%. Meanwhile, in 2009, GE stock fell while the S&P 500 had a monster year. The next year, it was GE stock that had the monster year.
So is now the time to go bottom-fishing with GE stock?
I think so.
Here’s a deeper look.
General Electric Is A Long Term Bet
Things really aren’t all the bad at GE. Yes, margins and cash flows are weak because of pressures in the power, oil and gas businesses. But sales growth is positive. Orders are up. The backlog is growing.
Aviation, the company’s biggest segment, is actually growing at a nice rate. At the Paris Air Show, GE illustrated its dominance in this space with $30 billion in commitments. That is 10 times the number of the nearest competitor.
Growth in aviation will remain robust due to urbanization. Developed countries are starting urbanize more quickly than ever before. As more and more people appear on the urban and digital grids, air travel demand will ramp up. That implies a healthy long-term outlook for GE’s Aviation business.
This global urbanization story also bodes well for GE’s other operating segments. Power demand will go up. So will healthcare and transportation demand. Overall, thanks to urbanization, General Electric has a very sustainable and positive long-term growth trajectory.
Meanwhile, GE is flirting with potentially super-charged growth in the Internet-of-Things (IoT) segment. For each big industrial piece General Electric sells, the company can add a little sensor on it. That essentially makes the industrial equipment smart. This smart equipment harvests a whole bunch of data and sends it to GE, where the data is analyzed and then presented to the buyer in a logical manner.
This a sizable part of the GE growth story which is being undervalued by the market.
In fact, the whole GE growth narrative is being undervalued by the market. GE stock trades at 15.8-times this year’s earnings estimate versus a 19-times fiscal 2017 earnings multiple for the S&P 500. So GE stock is more than 15% cheaper than the market.
But growth isn’t all that bad.
General Electric’s projected 11% annualized earnings growth rate over the next several years is actually nearly identical to the market’s projected earnings growth rate.
Therefore, I can’t help but think GE stock is more attractively valued than the market by about 15%. The company has the same growth prospects, but the stock trades at a 15% discount.
Bottom Line on GE stock
Looking over the past several years and finding that GE stock usually has very a good year after being down in an up year for the S&P 500 is a little bit too much tea leave reading for me.
But when it matches up with a strong underlying growth story and a lowly valued stock, I start to think those tea leaves might be saying something material after all.
I think now is a good time to start picking up shares of GE. It may be due for near-term turbulence, but this stock should be significantly higher in a 12-24 month window.
As of this writing, Luke Lango was long GE.
More from InvestorPlace
The post Is It Time To Start Buying Beaten Up General Electric (GE) Stock? appeared first on InvestorPlace.
