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Shares of General Electric (NYSE: GE ) have been on a terrible ride so far this year. So much for this being an industrial blue chip name, right? GE stock is now down more than 50% over the past 12 months and more than 56% since the company reported its 2017 third-quarter earnings results just over a year ago.
Q3 2018 and Q3 2017 don't lap perfectly year-over-year because GE delayed its earnings results for the most recent quarter. Instead of being released earlier this month, that gem was saved for Tuesday before the open. In the report, General Electric reported earnings of 14 cents a share on revenue of $29.6 billion, missing expectations of 20 cents per share on sales of $29.92 billion.
Admittedly, the revenue miss is moot; $20 million to GE is like twenty bucks to you and me. The other results were the larger concern. After slashing its annual dividend from 96 cents per share to 48 cents per share last November, management axed it to just 4 cents per year, all but eliminating the payout. Given the move, it's surprising shares only fell 10%.
It's a double-edged sword though: GE is facing way too many cash flow issues and paying out billions per year in the form of a div i dend was not wise business. That said, the stock would get - and did get - hammered on the news of it essentially being eliminated.
Earnings fell 33% year-over-year and GE took a $22 billion pre-tax impairment thanks to its Power unit. Overall, revenue fell 3.5%.
Valuing General Electric Stock
There are two ways to lower a price-to-earnings (P/E) valuation - remember, it's stock price divided by earnings. To get a lower valuation, we either need the stock price to fall or earnings to rise. In the case of GE though, both metrics keep falling. As a result, despite the massive decline in General Electric stock, it's not getting incredibly cheap the way some investors certainly wish it would. And without a dividend to help support it, GE is quickly losing any appeal that it seemingly had.
Based on its trailing-12-months of business, shares trade at 13.3 times earnings. Not bad, but certainly not cheap considering the murky situation it continues to wade through. Heck, names like Exxon Mobil (NYSE: XOM ), JPMorgan (NYSE: JPM ) and AT&T (NYSE: T ) are cheaper and have a far better situation than General Electric.
That's really the problem, too. It's one thing to say GE stock is unattractive based on its balance sheet, cash flows and traditional valuation metrics (it is, by the way). But it's also hard to want to buy GE when we can buy names like Boeing (NYSE: BA ), Honeywell (NYSE: HON ), 3M Co (NYSE: MMM ) and others. And that's just staying near GE's peers, let alone how other well-run companies look right now after this October swoon.
Analysts expect earnings to fall 17% this year to 87 cents a share before rebounding 10.3% to 96 cents per share in 2019. Trusting estimates beyond 2018 is tough though, given the still-rotten situation that persists at GE. Maybe business is bottoming, but we need to see that reflected in the stock before we try nibbling at this one.
It doesn't help that Moody's downgraded GE stock too, now just three notches above junk territory.
Trading GE Stock
Click to Enlarge
We can see the various downtrend lines and what key events occurred to really put the pressure on General Electric stock. All of that has cultivated to where we are today. I guess the one bullish note we can hang our hat on is $10. After three days, shares are still clinging to this level, as investors try with all their might to keep GE stock away from the single digits.
My fear though? The stock market has been on a strong run over the past few days. Amid that outperformance, the best GE stock could do is cling to $10. What happens if we revisit the lows or, more likely, just pullback from most indices' 200-day moving average?
I'm not trying to be too overbearing on the tick-by-tick action, I just don't want to see $9.99 or lower on General Electric stock. If we do break this mark and trend lower, look for possible support on the backside of prior downtrend resistance (blue line).
For the downtrend to be over though, we need some serious strength. Specifically, GE needs to get over current downtrend resistance (purple line), and the 20-, 50- and 100-day moving averages. That will likely need to coincide with getting over previous support levels near $11 and $12 too.
Aggressive buyers can go long GE stock knowing that below this week's low is their stop-loss.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell . As of this writing, Bret Kenwell was long T and JPM.
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