Several signs show that General Electric (GE) plans for a turnaround are starting to resonate with investors. GE stock edged higher Friday, nearing a buy point.


GE Bonds Are Doing Well

General Electric’s 10 biggest outstanding U.S. bonds have gained an average 11.73% so far in 2019, Reuters said Thursday. That’s better than the ICE BAML index of bonds rated BBB, which has a total return 6.53% in the same period.

Just last year, swooning GE debt led to bond market chatter that GE might lose its investment-grade credit rating.

GE earnings on April 30 buoyed hopes that CEO Larry Culp’s turnaround plan is starting to take hold. Now rising GE bonds suggest Culp’s plan to lower a crushing $110 billion debt load is winning favor in the bond market.

Culp priorities include deleveraging General Electric and improving cash flow, as well as getting the troubled power unit back on the rails. He took the helm last October just before credit rating agencies downgraded GE to just three notches above “junk” status, citing untenable debt as earnings declined.

General Electric CEO Rewarded

GE shareholders voted this week to endorse the compensation paid in 2018 to top executives including CEO Larry Culp. That’s seen as another sign that investors recognize Culp does have a credible plan to restructure and revive the industrial conglomerate. A sizable minority did oppose the pay package though.

That comes after General Electric’s board OK’d a total compensation plan that could earn Culp more than $300 million — if shares rise 150% in coming years.

GE stock was booted from the Dow Jones Industrial Average last year as shares fell to their lowest level in almost a decade.

GE Stock Eyes Buy Point

Shares rose 0.9% to 10.13 in Friday’s stock market trading. But they’ve vaulted 34% year to date as investors embrace signs of a GE turnaround. GE stock is up 52% from the December low of 6.66.

GE stock is now in a cup-with-handle consolidation going back to Feb. 25, with a potential buy point of 10.63. But this base has formed below its 200-day moving average after a long downtrend. GE stock is hitting resistance at that key level.

And the relative strength line, which tracks a stock’s performance vs. the S&P 500 index, is off December’s 30-year low, but only modestly.

Given the stock’s weak fundamentals and some technical flaws, GE is not a buy under IBD criteria, and wouldn’t be even if it broke out past a buy point.

Analysts remain mixed on GE stock. Six brokerage firms rate GE stock a strong buy, one has a buy, six have a hold, and one rates it a strong sell, according to Zacks Investment Research. A month ago, six had a strong buy, one had a buy, seven had a hold and none had a sell.

GE rivals United Technologies (UTX) rose 0.2%, Siemens (SIEGY) 2%, 3M (MMM) 0.3% and Honeywell (HON) 0.7%.

Please follow Aparna Narayanan on Twitter at @IBD_ANarayanan for stock market updates and more.


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