logo

GE is suffering a historically horrible year

VIDEO2:1302:13
Trading Nation: GE is Dow's biggest laggard

The Dow Jones industrial average just posted its best week of the year, rallying to all-time highs, but its oldest component is badly lagging in 2017.

In fact, shares of GE are having a historically bad year, falling 23 percent since January. The stock is underperforming the industrials sector by 34.5 percent; that's its most significant underperformance since 1991, according to FactSet sector data.

Furthermore, the stock is underperforming the by 36 percent; that's the most significant underperformance through FactSet's data on GE, which goes back to 1973. The stock, too, is underperforming the Dow by 36 percent.

Some feel GE will see further downside ahead, at least in the near term.

If a turnaround were in store for the Dow's oldest component, "we would have seen more evidence of it right now," said Gina Sanchez, CEO of Chantico Global.

Specifically, Sanchez pointed to the company's exposure to oil, power generation and airlines. Oil has posted somewhat of a rebound in the last month, recouping some of its year-to-date losses; crude has gained 3 percent in the last month, and 4 percent in the last week.

If energy has appeared to show some signs of life, "why didn't we see more participation in GE?" she said, referring to some points made by JPMorgan analysts in a bearish note on the stock earlier this month.

"We see a core operating performance that is below plan, and, currently, a consensus expectations curve that we think remains too high, FCF [free cash flow] that is the weakest in the sector, and, with that backdrop, a valuation that is expensive, with limited incremental catalysts to change the narrative. ... While visibility is low, we see downside risk to our well below consensus estimates," wrote analyst Stephen Tusa.

Tusa wrote of the now-$24 stock that $24 per share appears to be a "ceiling as opposed to a floor prior, with something in the high teens as an 'investable fair value.'"

"I think there's probably still a little more to go, and in fact you could see a kitchen sink quarter, next quarter, as the new CEO comes in and takes a moment to reset GE and expectations," Sanchez said Friday on CNBC's "Power Lunch," referring to piling in all the bad news a company has to offer at once, so as to perhaps price in the bad news all at once.

Some have a rosier view. It is perhaps beneficial that the company's new CEO, John Flannery, has taken the helm at a time when the stock has fallen so far, said Eddy Elfenbein, portfolio manager at AdvisorShares, adding that he has a chance to perhaps turn the stock around.

"There's a lot of cutting they could do, particularly at HQ, and another thing I like about it is the dividend yield. It's over 4 percent," Elfenbein said Friday on "Power Lunch," pointing out that it's roughly twice that of the 10-year Treasury note yield.

Shares of GE were nearly 2 percent higher on Monday, appearing to rise after a report that the company was working toward a way to harness artificial technology in electricity grids.

Disclosure: Eddy Elfenbein does not own shares of GE personally or for clients.

Disclaimer