General Electric (GE) continues to move up, but investors have been worried that the ongoing investigation into the recent GE jet engine failure might hinder its continued growth. This will not be the case, and in this article I will give some examples why.
GE Engine Failure on 747
The company is investigating a second failure of its GEnx jet engine on a Boeing (BA) 747-8 wide-body freighter flown by AirBridgeCargo Airlines. The failure is the second in less than two months involving a GEnx engine from GE. It places the engine and the airframes that are powered by it under a dark cloud. Should investors worry that this may hinder the stock's performance? GE has finished its review of GEnx engines on the global 787 fleet. About a dozen of Boeing's four-engine 747-8 freighters remain to be checked. It may not make a difference in the price of the stock in the long run.
Industrial Revenue Growth Anticipated
Even with this ongoing investigation, the global conglomerate continues to prosper. GE raised its expectations on industrial revenue, and investors like what they see. Originally the division had an estimate of 9% to 10%, but now it is projecting upper 10% growth with double-digit EPD growth as well. This division makes everything from jet engines to medical devices. On top of these new projections, it just secured $1.2 billion from power producers in the United States, Japan, and Saudi Arabia for newly developed heavy-duty gas turbines. GE expects to deliver the turbines between 2013 and 2016. The remaining orders are for projects in the United States, including the Cherokee project near Denver.
Keppel Offshore & Marine Ltd., a leading designer and builder of high-performance mobile offshore rigs, is going to use GE to supply the electrical power generation, thruster, and drilling drive technology for six new semisubmersible drilling rigs for Brazil. This is worth about $120 million in contract work.
Since General Electric started its bullish journey in early June, it has been using a stepping pattern where the stock tends to move up quickly for a short period of time and then consolidates by either moving sideways or becoming slightly bearish. But as I make my observations, I believe the stock may be heading into another consolidation phase if it continues to hold up the present pattern. If I look at the RSI indicator the stock appears very over bought right now, and this usually indicates a pullback. There is no indication of a turnaround, just a pullback. The MACD continues to look bullish following between the zero line as it moves up and consolidates. The recent bullish move also looks as if it has peaked and is now getting ready to move lower again. Observing this stock, I would conclude that it looks like it will consolidate soon.
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Options Plays on GE
The last time I wrote about an options play on GE, it was August. At the time I was contrarian and suggested buying a January 21 put and selling the 20 call. I could not have been more wrong. But at this point I would not recommend an options play, only because the stock should move sideways now. With the post-election European conflict raising its head, it is something I would not suggest at this moment.
The stock continues to proper despite the negative news about the jet engine.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.