Yesterday’s contract win by General Electric (NYSE:GE) from Canadian National Railway Co (NYSE:CNI) for 200 locomotives went mostly unnoticed by the market and the news media outlets as the country geared up for the Christmas Holiday. This is one of many recent positive developments that have been ignored by the market as year end tax selling has kept downward pressure on GE along with the doom and gloom that has the stock trading at a 6 year low.
The demise of GE (NYSE:GE) in my opinion is to say the least overblown. Yes the company is having issues with their energy division. Yes they cut the dividend by 50%, Yes the stock is down 46% YTD. Yes there is year end tax selling.
Is there any reason to buy GE at all? I guess that all depends on your tolerance for risk and ability to handle a possible 10% downside from capitulation level lows reached a month ago at $ 17.46 and the recent low on Thursday of $ 17.36, the same day the tax reform bill passed.
GE is out of favor and in the dog house, this is a secret to no one. However it is my belief that GE will be turning the corner much sooner than the market is forecasting. The last six weeks have seen the stock trade in a tight range as the market searches for the ever elusive multi year bottom.
I bought more Friday at $ 17.41,adding to a heavily long position in the stock.
Here are a few headlines that you may have not heard about or seen over the last 30 days that should have moved the stock in a positive direction.
General Electric: CN (CNI) says will acquire 200 new locomotives over the next three years from GE Transportation to accommodate future growth opportunities and drive operational efficiency across its system
From briefing.com TODAY
The locomotives will be produced at the GE Manufacturing Solutions facility in Fort Worth, Texas beginning in 2018. CN’s order is the largest among class I railways since 2014. The first units are expected to be delivered in 2018 with the balance delivered in 2019 and 2020.
GE scores its largest Renewable Energy order in Thailand
- Agreements to build three 90 MW clusters for the Theparak Wind farm in Central Thailand
- 270 MW of total capacity to provide enough electricity to power the equivalent of 120,000+ local homes
- Win supported by the GE Store; strong collaboration between GE Renewable Energy and GE Power.
Bangkok, 13 December 2017 – GE Renewable Energy and GE Power recently announced agreements to provide 270 MW of wind energy capacity to Wind Energy Holding (a member of Thailand’s KPN Group) for the Theparak Wind Farm in Central Thailand.
GE Renewable Energy is set to provide a total of ninety 3.0-137 wind turbines with 156.5m hybrid towers, making those the tallest turbines it has ever installed outside of Europe. Read full details by clicking here.
One third of 66 GE Haliade 150-6MW nacelles depart for Merkur Offshore windfarm
- Complex logistical dance needed to complete project by 2018 remains on-track
- When completed Merkur will be one of Germany’s largest offshore wind farms
- Project will power around 500,000 homes and cut CO2 emissions significantly.
Paris, December 12th 2017 – GE Renewable Energy announces the depart of the last set of nacelles to be shipped this year to Merkur’s Offshore Windfarm logistical hub in Eemshaven Netherlands. By the end of the month this hub will have received 24 nacelles, 24 blades, and several other tower fragments and transition pieces. With all these component in-place, local teams will perform some pre-assembly works while getting prepared for the installation phase that is set to begin mid-February 2018. Click here for more for more details.
GE Power, Egypt’s EETC to connect 120 MW of wind power to national grid through extension of the Gabal El Zayt substation
- Extension of the Gabal El Zayt substation will help connect up to 120 MW of wind power to the national grid from one of the region’s largest wind farms
- GE will also provide local project management, engineering, design, fabrication, the erection of power transformers, site management, testing and commissioning services on a turnkey basis as part of the agreement
Cairo, Egypt; December 11, 2017: GE Power (NYSE: GE) today announced that it has signed an agreement with the Egyptian Electricity Transmission Company (EETC) for the extension of the Gabal El Zayt 22/220 kilovolt (kV) Gas Insulated Substation, connecting an additional 120 megawatts (MW) of power to the national grid by the end of 2018.
The extension will leverage GE Power’s Grid Solutions portfolio, which includes GE’s B105 220 kV gas-insulated switchgear (GIS), in addition to medium and low voltage systems, control and protection systems and auxiliary services. GE will also provide local project management, engineering, design, fabrication, the erection of power transformers, site management, testing and commissioning services on a turnkey basis. You can get more details from the company website at ge.com.
GE Renewable Energy Receives Full Maintenance contract for Alsleben Wind Farm in Germany
November 30, 2017
- 9-year agreement to oversee full maintenance needs for the 54MW Alsleben wind farm
- More than 20 years of services experience in Europe
Salzbergen, 30 November 2017 – GE Renewable Energy today announced it was awarded a Full Maintenance contract for the Alsleben wind farm in Germany by Dortmunder Energie- und Wasserversorgung (DEW21), a subsidiary of the municipal utility of the city of Dortmund in North Rhine-Westphalia, who currently operates the site and its 36 turbines.
The agreement includes the implementation of remote monitoring and regular maintenance intervals as well as the preventive maintenance and replacement of large components when needed. GE Renewable Energy will be responsible for the full maintenance of the facilities over a period of nine years. The agreement was tendered by DEW21 in the framework of a European procurement procedure. More details available at ge.com
A list of large companies to benefit from tax repatriation
GE has 41.9% of their cash overseas, how much they will bring back is unknown but I believe it will be substantial.
Tax Reform Passes!
In a month where stocks rallied on tax reform, GE has GONE NOWHERE.
Today it is testing a yearly low that equals the low in Dec. 2011. Where does it end? Not sure, maybe here. The tax selling is coming to an end and some deep pockets may be stepping in to buy these levels the last several days. I have been buying while knowing it may get a little cheaper.
Tax reform will benefit GE although their tax bill is minimal, repatriation and corporate structure going forward stand to give great benefit to the company. I estimate a minimum of $ 2 to $ 3 a share in value from the new tax structure, we will have to wait until experts confirm my thesis.
To be clear, in my opinion GE should have rallied on the announcement of 12K job cuts or the largest renewable energy deal in Thailand. The stock should have rallied on the 200 locomotive deal with Canadian National railway but it didn’t. It barely showed up in the news.
The art of the shakeout
This is a real phenomenon that is going on as we speak, One negative article after another calling for a frightening drop from the current level of down 45% on the year and years of turnaround.
Deutsche Bank analyst John Inch, who rates GE a Sell with a $ 15 price target. Says they could exit Baker Hughes.
Great, just great, John Inch of Deutsche Bank(NYSE:DB) puts a sell with a target of $ 15? Of course the stock can go to $ 15, any human with a stock chart could see that as a possibility. These type of comments are made all the time at multiyear lows, it does not mean it is going to happen.
Deutsche bank wants to buy GE on the cheap along with everyone else. So here is my take: They could sell Baker Hughes, or keep Baker Hughes and ride the rebound in oil that is coming this spring. I think they should keep it and make it work.
John Inch is a person working for Deutsche Bank, speculating to the downside with his own agenda. GE could trade to $ 15 or also trade to $ 20 next month, place your bets accordingly. Investors should consider using options to hedge the downside if needed.
Perspective from experts
One need look no further then one of my favorite calls by Goldman Sachs (NYSE:GS) a couple years ago calling on iron ore to stay at $ 35 to $ 40 for the next 5 years. Vale (NYSE:VALE) was trading at a multi year low around $ 2.30 a share then. It now trades around $ 12. Maybe Goldman will make the next downside call that marks the bottom for GE.
I was pounding the table when Bank of America, (one of my favorite stocks) (NYSE:BAC) was $ 12.50 in June of last year 2016, it now trades near $ 30. GE will be fine and those buying this level will likely see a 50% upside or more in the next 12 to 18 months. IT pays to ignore the doom and gloom and backward looking forecasting as we move into a new age of corporate and global growth.
In a world where Riot Block chain (RIOT) can rally from $ 6 in November to $ 45 in a month on a name (like dotcom) and no earnings gives me serious pause. RIOT down 50% in a few days by the way should tell you something. Stay away for now from bitcoin unless you are prepared to lose 50% to 98% or more of your money.
A look at the charts.
Here is a 10 year weekly to show the path of GE. Believe it or not I owned GE at $ 8.60 on the day the market bottomed in March of 2009. I bought the bankruptcy rumor that plunged the stock to $ 5.72 in a 30 minute period of time on fake news. It should have been investigated by the SEC, in my view it was straight up mayhem in action. That whole drop from $ 11 to $ 5.72 should have been eliminated from the stock chart and never happened, but it did.
The lesson: keep enough reserve to stay liquid in the event of a catastrophe. At a multi year bottom anything can happen.
One more intraday 60 minute chart showing a solid entry point if you believe in buying low and selling high.
Interested investors can see this intraday 60 minute snapshot of GE from early October which covered the earnings call miss and the November 13th conference call.
Important note: there was capitulation; the stock was bought by insiders, it then sold off on great economic news and tax reform that was not totally expected. The stock made a new low by $ .10 cents on the day tax reform passed, testing the will of those long the stock.
Look for more Insider purchases in the next 30 days.
I will be watching closely and keeping readers apprised of any new insider purchases in the coming weeks as more insiders step up to purchase shares. My last report on insider buying of GE showed the CEO of LOEWS buying 3 million shares on behalf of the company. Interested investors can read the full article by clicking here.
GE is in the dog house, down 45% on the year. The market has so far been ignoring many recent positive developments that would other wise cause a nice relief rally. Year end tax selling is pressuring the stock but I believe many are buying GE right now and not publicly talking about it.
In a world of news dominated by bitcoin and block chain, one could do a lot worse than putting some money to work in GE with a 12 to 24 month time horizon.
The 200 locomotive deal is a great win For GE, the Largest renewable energy order in Thailand is a positive and signal of more to come in SE Asia. All of these events are going unnoticed at the moment which is a good way to get a stock on sale.
At some point in the the near future the narrative will change and it will be all about global growth, and tax reform benefits to corporations. Until then buckle up and buy any weakness from here. The bottom may be in right now or there may be a little more pain but GE has some really exciting things going on including 3D printing that could be amazing for future growth.
I am a buyer of GE at this level and am excited about the digital revolution within the company. Flannery is making the right moves at the right time and it is my belief GE will turn the corner much quicker than the market is forecasting at year end.
As always, do your own research and always have an exit strategy in place before putting your hard earned dollars to work.
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Disclosure: I am/we are long GE,CHK,LYG, BP,NBR.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.