Over the past six weeks or so an important development has taken place with General Electric (GE) shares; the breakout of the channel pattern shares were in has been confirmed with strong price action since the company's last earnings report. The implication of this is that we have a strong bottom in GE shares around the area of the breakout, around $25 or so, and that GE shareholders are likely to enjoy more upside in the near to medium terms.
Apart from strong price action, GE has several fundamental catalysts that are likely to help power the stock higher in the coming months and years. The company recently landed several huge orders, including a $560 million turbine order, $26 billion in aviation orders, $1.7 billion in additional engine orders, an innovative deal with Clean Energy (CLNE), and much more. The point is that while not all of these deals are necessarily material to a company the size of GE, I believe the more important thing to take away from all of this is that GE is still the best of breed company in industrials that it always was and its ability to compete and succeed in a very competitive marketplace is as good as it ever was.
In particular, the Aviation segment has absolutely been on fire, scoring $26 billion in deals at the Dubai Air Show alone, or roughly five quarters' worth of revenue. That is astounding and it speaks to the Aviation business' ability to attract new customers and that GE is indeed the best industrial around in most of its lines of business. This portends well for GE longs as it means that the company's record order backlog is likely to not only be monetized but continue to grow, setting the stage for further revenue and profit gains in the future.
In addition to the great wins the industrial business has been getting, GE has continued to downsize its Capital arm with terrific results. Margins are up and showing no signs of slowing down and as a result, despite falling revenue, operating profits continue to rise. The company has also continued the process of divesting its non-core assets in relation to the methodical shrinking of Capital, with the most recent step being the IPO of the North American Retail Finance business. The point is that management is executing its plan to get to a 70/30 mix of industrial to Capital earnings and is doing so in the most profitable way, rewarding shareholders along the way.
GE shares have broken out to new highs and consolidated in the $27 area after the October earnings report. This is extremely bullish in my view as GE not only has very strong price action, but also many fundamental catalysts that should serve to send the stock higher. In addition to the billions upon billions of new order wins in just the past month or so GE is also testing the IPO waters with its Retail Finance arm and if that is a success, we should see GE shares move up in sympathy as it gradually exits its stake over the next couple of years. There are many reasons to like GE here and despite the new highs, GE is still going higher.