GE Stock Prediction: Why A Patient Approach Is Needed

GE Stock Prediction

General Electric Company (GE) has been strategically spinning off assets in recent years in order to streamline the business, with the sale of GE Capital the latest step. Although this move hurt the company’s bottom line in its most recent earnings report, it is a smart move in the long run. GE’s revenue declined by 12% in the most recent quarter, and the spinoff of the banking business caused profits to fall 6%. But by selling off its financial business, worth up to $500 billion, the company can become more focused on its industrial business. While this will help the company in the long run, difficult times are ahead during this transition, meaning investors should wait before initiating a position in this stock.

ge stock prediction

Exit From The Banking Business

By selling off most of GE Capital, the company is going through a major corporate transformation. This transformation started a couple of years ago, when GE started selling off assets like NBC Universal and its appliance business. The move to rid itself of the financial arm of the company, which drove revenues for the company before the financial crisis, is a major bet that the company will be better off without the potential headaches that come with the reformations in the financial industry that occurred as a result of the financial crisis.

As the seventh largest financial firm in the country, profits from GE Capital soared leading up to the financial crisis of 2008, as the financial bubble grew. Before the bubble burst, this segment of the company contributed nearly 60% of GE’s total profits. After having to be bailed out by the government in the form of $139 billion, the Federal Reserve responded by designating GE as systematically important to the financial industry and regulating it as if it were a bank.

This designation meant that GE no longer had an advantage in the financial sector over other firms, and the financial arm of the company brought more headaches than good. After spinning off the financing section and selling the real estate portion of the company, GE will become a simpler, more valuable industrial company. Now, when investors go to buy GE stock, they will know what they are getting in uncertain terms. Instead of risky loans and other confusing financial products, the company will be viewed as a pure play industrial company. Whether this resulting company will be a good investment requires looking into this segment of the company.

Impressive Industrial Business

The sale of financial and other assets makes more sense when taking into account the strength of GE’s industrial business. The core industrial business performed well in the first quarter when not accounting for headwinds, in the form of currency devaluation and energy prices. Organic growth in the industrial revenue was 3%, while the segment had 9% growth in industrial profit due to margin improvements. Since GE Capital used to provide a large portion of the company’s profits, it is important that the industry sector is able to grow industrial earnings double digits, and the prior quarter’s performance is a good sign it can.

The aviation unit particularly looks good, as it should be able to drive profit growth going forward. With revenue of $5.7 billion, the GE Aviation unit posted a segment profit of $1.3 billion. The segment profit was an 18% increase over the same quarter a year ago. This growth should be able to continue going forward, as aerospace giants Boeing and Airbus predict big growth in jet orders that will offer GE a chance to sell more of its engines. This was seen in the last quarter, as GE cited orders for $800 million LEAP engines, which will be used on new Boeing and Airbus jets.

Wait Patiently To Invest

While the transition to a pared down industrial company looks smart, the company will suffer in the short term as it sells off its real estate assets. The company will return lots of value to investors during this time, but currency and energy headwinds, which really hurt GE’s oil and gas business, mean that this stock is not a good option right now. The oil and gas business makes up 15% of GE’s total, and revenue from this business segment fell 8%. Taking headwinds and a one-time charge related to the sale of its finance unit into account, GE reported a $13.6 billion loss during the past quarter. While the industrial segment should make the company a sounder investment in the future, be patient when initiating a position in this stock and wait until headwinds and other secondary factors clear the way for the new strategy to take place.

Algorithmic Analysis

I Know First supplies financial services, mainly through stock forecasts via their predictive algorithm. The algorithm incorporates a 15-year database, and utilizes it to predict the flow of money across 2000 markets. The algorithm has more data to forecast within the long term and, naturally, outputs a more accurate predication in that time frame. Having said that, intraday traders, along with short-term players, will also benefit by taking the algorithmic perspective into consideration.

The self-learning algorithm uses artificial inelegance, predictive models based on artificial neural networks, and genetic algorithms to predict money movements within various markets.

The algorithm produces a forecast with a signal and a predictability indicator. The signal is the number in the middle of the box. The predictability is the number at the bottom of the box. At the top, a specific asset is identified. This format is consistent across all predictions. The middle number is indicative of strength and direction, not a price target. The bottom number, the predictability, signifies a confidence level.

Figure 1. 3-Month Algorithmic Performance For GE.

Figure 1 includes a 3-month prediction from January 20th, 2015. GE had a signal strength of 30.15 and a predictability indicator of 0.29. In accordance with the algorithm’s prediction, the stock price increased 15.59% in the predicted time horizon. Having demonstrated an example of when I Know First’s algorithm was able to correctly predict the behavior of GE’s stock price in the past, looking at the current forecast can add meaning to the fundamental analysis above.

month forecast

Figure 2. 1-Month And 3-Month Algorithmic Forecasts For GE.

Figure 2 includes the one-month and three-month forecasts for GE from April 19th, 2015. In both forecasts, the company has a very weak signal, indicating the algorithm believe the stock is properly for the respective time horizons. This makes sense considering the significant headwinds the company faces in the short term, including to its oil and gas business segment.

year forecast

Figure 3. 1-Year Algorithmic Forecast For GE.

However, the one-year forecast in figure 3 has a stronger positive signal, indicating that the stock price will eventually increase, providing earnings potential to investors who are patient enough to recognize when the stock price makes a turnaround. This should be after the sale of other assets is made final and the industrial segment is no longer burdened by heavy headwinds. While the long-term strategy being implemented by GE’s management team looks wise, now is not the time to invest.