General Electric ($GE): upside potential

Investment idea by DTI

Exchange: NYSE
SectorDiversified Machinery
IndustryIndustrial Goods

Contents:

Entry strategy

Price: market price
Stop-loss: $12,96
Take profit: $17,50 (first target), $19,50 (second target)
Investment horizon: 4 months

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Company info

General Electric (GE) was founded by Thomas Edison in 1878. The company's specialization is advanced business solutions. Its headquarters are located in Boston, Massachusetts. Since 2017, John Flannery is the chief executive of GE.

#funfact GE is the company present in Dow Jones index since its inception in 1896

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Technical analysis (trading plan)

Pic. 1. Investment strategy for General Electric ($GE). Source: TradingView.

After a prolonged downtrend, $GE formed a short-term symmetrical triangle on the daily chart. After the company reported on its Q1 earnings, the price moved up sharply, forming a gap and a possible V-pattern. This indicates a possible trend reversal to $17.50, $19.50, and $23.00 levels.

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Investment rationale

Better financial performance. Analysts surveyed by Thomson Reuters expected a revenue of $27.45 billion, while the actual result was $28.66 billion. Q1 results matched plans approved by investors in late 2017.

Relative cheapness. In 2017 $GE dropped by more than 50% while the S&P grew 11%. It was triggered by a $6.2 billion asset write-down. Furthermore, GE's financial activities were being investigated by the SEC and Justice department.

Sell-off of non-core assets and cost cutting. Dividends and management bonuses were reduced, and former CEO Jeffrey Immelt received no severance pay.

Effective management. The new CEO plans to focus the company on aviation, energy and healthcare industries. Veritas Capital announced plans to acquire GE's healthcare software. The deal is to be closed by the end of this year.

Other facts. In November 2017 Flannery acquired some $GE stocks, while Warren Buffett said he was ready to invest "at the right number".

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Financial performance

In Q1 2018 revenue grew by 7% to $28.66 billion, while profit from continuous operations grew 8.4 times year-on-year to $440 million. Earnings per share leaped from 1 cent to 4.

#more On GE profit growth on Reuters

See Tables 1 and 2 for an in-depth look into the company's quarterly and annual results.

Table 1: General Electric ($GE) quarterly performance. Source: MarketWatch.
Table 2: General Electric ($GE) yearly performance. Source: MarketWatch.

Also published on Medium.