(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
The bulls have begun to return to General Electric Co. (GE), at least based on recent activity in the options market. The volume of options trades betting that GE's stock will rise has risen sharply in recent days, with some traders betting the stock will rise by about 10% by mid-September. The positive outlook for the stock comes as analysts have started raising their earnings and revenue forecasts for the company in recent weeks, a notable change in trend.
The stock has underperformed the broader S&P 500 over the past year with the stock plunging by 46% during the same time that the S&P 500 has risen by over 14%. It has been a significant fall from grace for the iconic company, even resulting in the stock's removal from the 30 stocks that comprise the Dow Jones Industrial Average, a well-known index that had included the stock since 1896.
Options traders are betting shares at least bounce over the short term and are looking for the stock to climb by expiration on Sept. 21 to roughly $15.40, an increase of 10% from its current price of $14.10. The $15 strike price calls have seen their open interest levels nearly double since June 25 to 65,000 open contracts, a bullish sign.
One reason why traders may be getting more optimistic about the stock is that analysts have started lifting their revenue and earnings forecast for GE for the first time since the start of the year. Analysts now see earnings climbing by nearly 12% in 2019, up from about 9.6% at the beginning of July. Revenue estimates have also started rising, and analysts now see revenue climbing by nearly 2%, up from a gain of 1%. But not all analysts are bullish—in fact, some even shares continuing to fall, to perhaps to as low as $9.
The technical chart is also suggesting GE may be putting a bottom in as well, with a technical reversal pattern known as a double bottom. Additionally, the stock is nearing a technical breakout if it can manage to rise over a downtrend that has been in place since the summer of 2017. Should shares break out, the stock could increase to nearly 17, an increase of nearly 21%.
It is far from clear if the new bullish trends are a sign of a long-term bottom, or merely a short-term bounce. However, these are all notable changes in direction, and with earnings due in a matter of weeks we may soon find out.
Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.