(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
General Electric Co.'s (GE) stock has been hammered over the past year, with the company losing nearly half of its value, falling by 48%, versus an S&P 500 which is down only 5%. Shares of the legendary company are now beginning to show signs of life. Based on a technical analysis of the chart shares could rally about 15% from its current price of $15.
Options traders are starting to change their view on General Electric and are beginning to get more bullish on the name. The stock had already jumped 17% since April 9, rising from around $12.80. (For more, see also: The Future of General Electric: The Red or Blue Pill?)
Strong Technical Patterns
The chart below shows a critical bullish technical pattern called a reverse head and shoulders. In this case, it may serve as an indication that shares will be heading higher, and the near-term lows may even be in place. Additionally, shares of GE are breaking out, rising above a critical level of technical resistance around $14.70, while also nearing another technical downtrend, around $15.20. Should shares break that downtrend, and rise above $15.20, the stock has a clear path to continue to increase to about $17.30. In fact, there is an outside chance that GE refills much of the gap created at the start of 2018, from $17.30 to $19.25. A jump to $19.25 would result in a rise of roughly 29%.
Options Sentiment Shifts
Option trader’s sentiment is beginning to shift as well. Using the options set for expiration on September 21, the $15 strike price has a put to call ratio of about 2 to 1, with 57,000 open puts to about 27,000 open calls. But the number of open puts has declined by about 33% from 83,000 open contracts, just since the middle of April. Additionally, the number of call contracts have increased by about 38% from roughly 19,000 open contracts. It may suggest that options traders are overall becoming less bearish on GE, and see shares rising in the future.
Business Outlook Still Murky
The outlook for the company is still murky, with analysts looking for no revenue growth in 2018 with a forecast of $121.37 billion, while earnings are seen dropping by nearly 11% to $0.94 per share. Until the company can show an improving outlook for the business, it makes any gains in the stock hard to sustain. (For more, see also: Will General Electric Ever Return to Growth?)
The technical charts and the options appear to be suggesting better days may be in store for GE in the near term, and that may be good enough for now to keep GE's stock climbing.
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.