GE Stock is a risky bet, but not in the long term


The pandemic could not have caught the industrial giant General Electric (NYSE:GE) at a worse time. The company was progressing in early 2020, but the Covid-19 played the spoilsport and disrupted its activities. Based on a recent investor update, GE faces several headwinds that are expected to hurt its third quarter results. However, most of her problems are likely to be temporary. GE stocks are always a good game in the long run.

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Recently, a 1 for 8 stock reverse also caused GE’s price to rise, putting it in the current range of around $ 100. The split reduces the number of shares from about 8.8 billion to 1.1 billion. Lately, however, the title has not performed very well, behind the S&P 500.

However, GE’s stock trading is still in line with industry averages and is slightly undervalued based on forward sales estimates. Moreover, analysts estimate that it is trading at around 17% off, based on consensus estimates. Therefore, it is probably best to grab this stock while it is down, before GE makes a substantial recovery in the quarters to come.

GE stock: possible difficulties in the third quarter

GE’s strategy is clear. The company expects GE Aviation to win again and GE Healthcare, Power and Renewable Energy to remain strong cash and earnings generators with strong margins. However, the recent update from Steve Winoker, Vice President of Investor Relations, suggests that there is likely some turbulence to come.

For the commercial aviation division, Winoker spoke about the potential impact of the delta variant. However, the vice president also said that GE does “not anticipate any change in our expectations for the store visits that we have provided.” So beyond that, the company’s commercial aviation aftermarket sales can still be as expected.

Perhaps of more concern, however, are GE’s supply chain issues. These problems affected its military activities in the second quarter. This is something investors need to watch out for moving forward, as well as a potential slowdown in flight departures.

GE Healthcare is also likely to be under the most stress due to these supply chain issues. According to Winoker, the company could face “sustained pressure” in the third and fourth quarters. This is a major concern for investors in GE shares, given the importance of segment cash flow to the company.

Strength in other segments

That said, GE Power is probably the least affected segment. Winoker seemed confident that the division will reach directions. In addition, the company noted the strength of the segment in the second quarter. earnings call.

Finally, there is the renewable energy sector. GE Renewable Energy was one of the best performers in the second quarter. However, in the investor update, Winoker spoke about the potential risks to the orders due to the US Wind Generation Tax Credit (TPC). Basically, a PTC extension could hurt orders as GE customers may want to defer spending. However, this development may turn out to be generally positive in the long term.

Surprisingly enough, there was also no mention of supply chain issues for the company or any resulting pressure on margins. Meanwhile, the company’s rivals in this niche – Vestas (OTCMKTS:VDRY) and Siemens Gamesa (OTCMKTS:GCTAF) – have lowered orientations. This is another boon for GE stocks.

Net income on GE shares

Ultimately, the third quarter could get relatively bumpy for GE. However, most business problems should be resolved soon enough.

For example, problems with the company’s aviation and healthcare operations appear temporary. Meanwhile, the power sector appears to be moving in the right direction, while an extension of PTC should ultimately bode well for the renewables segment as well.

All in all, GE could raise its forecasts and stay on track to meet its medium-term goals. It’s currently experiencing some difficulty, but that doesn’t mean you should count GE stocks out of stock in the future.

As of the publication date, Muslim Farooque does not have (directly or indirectly) any position on any of the titles mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.

Muslim Farooque is a passionate investor and an optimist at heart. A long-time player and passionate about technology, he has a particular affinity for analyzing technology stocks. Muslim holds a Bachelor of Science in Applied Accounting from Oxford Brookes University.

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