As one of the oldest companies in the U.S., General Electric has had a bad few years, but has it finally turned the corner in its recovery?
Sept. 14, 2021
General Electric (NYSE: GE) is a pillar of U.S. industry, being one of the oldest and largest industrial companies in America. Buying this stock would normally be a traditional choice, but, with a rapidly changing world, has the company shown that it can adapt? We also ask if General Electric is still a good investment?
The bull case for General Electric
General Electric is potentially a stock to own for the long term. Having made several wrong turns in recent years, General Electric made the decision to introduce new management in 2018 in the form of H. Lawrence Culp Jr., who came in to take the reins as CEO. Of course, the pandemic hindered that somewhat, but it also has given the company time to show signs of turning things around.
On the stock side of things, General Electrics stock has steadily recovered since the March lows of 2020 and over the past 12 months, it is up 110%. In 2021 alone its stock is up 23% at the time of writing.
On the financial side of things, General Electric is certainly doing better than it was in 2017 before the change in management was implemented. In 2017, it lost $8 billion on revenue of $118 billion, whereas, year-to-date (YTD), the company has made nearly $2 billion in profit with total revenue of $35.4 billion. The difference in efficiency is huge. In addition, the company has generated $500 million in free cash flow this year.
General Electric is recovering from the pandemic as well, with its aviation sector showing signs of movement in the 2nd half of 2021. Although new coronavirus variants are still a major worry, commercial engine production rates are expected to be up year-over-year (YoY) in Q3, whilst military supply chain challenges are working towards a resolution.
General Electric is certainly on the road to recovery and is likely to bring investors some returns over the next few years if the market remains bullish. For a long-term investor, this is a great opportunity to buy an iconic stock and watch it bear fruit over the next decade.
The bear case for General Electric
General Electric does also have some bear cases to consider. Whilst its recent earnings report did show a definite improvement in both its efficiency and the aviation sector, it did also have some disappointments.
The company’s number of units ordered in its Renewable Energy sector was lackluster in two out of three areas. For its wind turbines and its wind turbine gigawatts, YoY they were down 38% and 31% respectively. Only repower units were up 195% YoY coming in at 349 units for the quarter.
Another sector where the company will continue to experience negative pressure is its healthcare sector. The company has warned that its most lucrative sector is experiencing shortages from both labor and resources; resin and semiconductor supplies presenting a particular challenge. As such medical scanner production will be affected until at least the end of 2021.
This along with a continuation of slow recovery from the aviation sector means that whilst General Electric is on the right track, it will not see a full recovery until late 2022 or beyond.
So, should I buy General Electric?
General Electric is a company that might need a little faith from its investors over the next few years. Its turnaround from 2017 is evident, but the added factors of 2020’s coronavirus-related issues mean that the company will take a bit longer to make a full recovery back to pre-2017 levels.
This is a stock to watch if you are a bit more risk-averse, otherwise, it might be a good stock to invest in for the long term if you don’t mind a bit of risk in your portfolio.
Quickfire Round:
- When was General Electric founded?
The company was founded on the 15th of April 1892, in Schenectady, New York
- Did Thomas Edison own General Electric?
General Electric was founded as the brainchild of a merger of Thomas Alva Edison’s company with that of Charles Coffin’s company in 1982. Edison and Coffin are co-founders.
- Is General Electric the biggest company in the world?
No, however, in the year 2000, it was the most valuable company in the world worth around $480 billion. Today its market cap sits at around $111 billion.
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