Fear can destroy a stock in seconds, but it can also create a wealth of opportunity if you know when to buy it. Just months ago, General Electric (NYSE:GE) plunged after whistleblower Harry Markopolos said GE was hiding financial problems and would have to raise insurance reserves. GE stock since has started to make its way back, but it has done so under a cloud.
“My team has spent the past seven months analyzing GE’s accounting and we believe the $38 billion in fraud we’ve come across is merely the tip of the iceberg,” Markopolos said, adding he was also paid by a hedge fund for such findings.
However, the pullback didn’t last long for one key reason. No one took the report seriously. Allegations of fraud at General Electric are “at best disingenuous, [and] at worst highly inaccurate,” said Nick Heymann with the William Blair firm.
“GE will always take any allegation of financial misconduct seriously, but this is market manipulation – pure and simple,” said GE CEO Lawrence Culp, who bought $2 million worth of stock shortly after. “Markopolos’s report contains false statements of fact and these claims could have been corrected if he had checked them with GE before publishing the report.”
That, along with falling cash flows, mounting debt, a slashed dividend, and a boot from the Dow Jones, and restructuring has been discouraging. However, since bottoming out at $7.90 in August, investors are more confident than ever.
Analysts are Still Bullish on GE Stock
Granted, GE’s path to recovery may be a long one, but I’m seeing positive signs of growth.
For one, UBS analyst just Markus Mittermaier upgraded GE stock to a buy rating with a price target of $14, calling 2020 an “inflection year” for the stock, citing debt repayment and better free cash flow as two main reasons for his bullishness.
Plus, with an argument that GE can de-leverage itself, the analyst also noted that GE could see earnings growth of 12% in 2020, and up to 29% by 2021, with industrial free cash flow tripling to about $2.3 billion by 2020.
“We expect the stock narrative to change from significant cash drag to successful transformation,” Mittermaier wrote.
Two, CEO Larry Culp has also indicated better days ahead. After releasing Q3 results, GE also raised its guidance for 2019 FCF and says its industrial business could bring in up to $2 billion for the year.
“That’s a $4 billion swing from GE’s worst-case-scenario in its initial March forecast,” says Bloomberg contributor Brooke Sutherland.
In short, GE stock is in the midst of a solid turnaround with Culp. While it’ll take plenty of patience for the stock to return to its former highs around $30, the recovery has begun.
The Bottom Line on GE Stock
With many negatives now in the rearview mirror and a cash-conscious CEO at the helm, I strongly believe the GE stock can stage quite a recovery, with patience. In my opinion, this is a great time to buy and hold GE stock for the long-term. In short, set it and forget it.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.