Goldman Sachs and General Electric (yes, GE) could see big upside, says technician

The Dow Jones industrial average has clawed back from the worst of last month's sell-off. Now two Dow stocks are poised to race ahead of the recovery, says one prominent technician.

"In a rally that has primarily been defined by tech leading, I think it's about time we start to look for some of the laggards," Chris Verrone, head of technical analysis at Strategas Research Partners, told CNBC's "Trading Nation" on Friday.

The two stocks Verrone sees as having the most potential upside are Goldman Sachs and General Electric.

Goldman, the second most expensive Dow stock on a nominal basis, suffered its worst losses in more than a year in February and hit the year's lows as broader markets sold off. It has rebounded since then to hit new all-time highs on Monday.

"It is challenging the very important $275 level," Verrone said about the price swings. "We think it breaks out here. And we think ultimately you're looking at a leadership stock in the making as we move through 2018."

Separately, the brokerage firm announced Monday that co-chief operating officer Harvey Schwartz will step down in April, making way for current president David Solomon to likely assume CEO Lloyd Blankfein's role when he eventually retires.

Verrone's self-described "controversial" pick, General Electric, is the worst performer this year and over the past 12 months. The industrial giant lost 12.7 percent in February, while the Dow lost 4 percent over that time.

GE shares are the worst-performing Dow stock last year. The company has been mired in constant management changes and recently cut its dividend.

Verrone, however, expresses optimism that GE has hit its bottom.

"We have to be open to the idea that this one is starting to put in some type of a low in that $14, $14.50 area," he said. "What's interesting to us is how the analysts have thrown in the towel. We think sentiment is bad enough where you start to look for some opportunity here."

Analysts are predominantly neutral to negative on GE stock. Few firms have a buy rating on the shares, while prominent brokerages such as Deutsche Bank and Oppenheimer have a sell rating.

Chad Morganlander, portfolio manager at Washington Crossing Advisors, shares the street's wariness over GE's future performance. In an appearance on "Trading Nation," Morganlander listed his concerns — a debt-laden balance sheet, the possibility of a split and the reality that its energy business will likely be sold at a significant discount.

"When it comes to GE, we're quite, let's just say, neutral on the company to be kind," said Morganlander.

Despite a preponderance of negative news, GE is the best Dow performer in March.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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