General Electric ($GE) has been in the news lately, and not for good things. A 52-week trading range that is incredibly turbulent, between ~$12-$27 a share, (as of the close of market 7/17/18 the stock was at $13.69).
If you take a look back even further, from 2007 to 2009, the stock went from $41.77 on 10/1/2007 to $7.06 on 3/2/2009.
Why? Bad management and lack of direction really took a toll on this massive behemoth.
What is the General Electric Business Model?
GE founded in the year 1892 is operating successfully for more than a century. It was one of the 12 founding companies listed on the Dow Jones Industrial Average in the year 1896.
After 120 years, GE is the only one of the founding companies still listed on the Dow index. Over the years GE has mastered the variable most needed for business success: continuous focus on business model transformation.
The General Electric business model has changed significantly over the last three decades. GE is transforming it’s product-centric, transactional business to become the world’s largest digital industrial company. Following graphic shows the 3 phases of GE’s business model transformation and the initiatives GE is taking to become the world’s largest digital industrial company.
$GE is a stock that currently everyone loves to hate, but in recent history, new management has been creating opportunities to improve the balance sheet, as well as return value to GE shareholders.
A few key highlights of why GE is a value right now:
- GE Aviation and GE Healthcare (the guys who make the massive MRI machines and such) both are posting solid growth as well as decent margins. This only translates well to the bottom line.
- They turned some assets into piles of cash, selling an industrials unit, and offloading their healthcare IT unit to Veritas Capital, and both of these deals brought in $3.6 billion in revenue.
- Most of the recent decline and lack of rebound is from lack of investor confidence, so buying the value and holding could be a good way to cheaply get into this dividend stock.
How you make money
GE is known historically for its dividend, and even though its dividend has been reduced, it is still paying one, and still a decent one at that (3.51%). With all of the management changes and streamlining, we looked at a 5 YR DCF model, and with top and bottom ranges, you can make money from both a ~74% upside (estimating a 5 year price target of $23.82), and from a 3.5% dividend.
Like playing options? Locking in 10 contracts to GE at a 17 JAN 2020 CALL with a strike price of $20, you can get into the play for $.42 a contract, bringing your risk to $420, but if GE hits $21.67 by 4 JUNE 2019, you’re looking at a total profit of $2,450, or a 583% return on your money.