Ex-Dow stock GE could drop another 50 percent before recapturing old highs, market watcher says

GE has the breakup blues after the Dow kicked it to the curb.

Since the company was removed from the blue-chip index at the end of June, GE shares have tumbled 9 percent, furthering the losses that had already taken them down to their lowest levels since September 2009.

One market watcher says GE could make its comeback in a few years, but until then investors have to be comfortable with risk.

"It's a three to five years rehabilitative investment," said Boris Schlossberg, managing director of FX strategy at BK Asset Management, on CNBC's "Trading Nation" on Wednesday. "But you have to step into the stock fully assuming you might be willing to lose 50 percent of the equity because it could be that dangerous."

A 50 percent drop would take the shares down to roughly $6.25 a share based on its Wednesday close. GE traded at its financial crisis lows in March 2009. Before that, it had not been that low since 1992.

Michael Bapis, managing director of The Bapis Group at HighTower Advisors, said GE's shares could be "dead money" for three to five years. After that, he expects management's revamp efforts to begin to bear fruit.

"It's definitely a management turnaround. Can management do enough to drive earnings from the product lineup they have and really restructure the company? It's going to come down to 'show me the money,'" Bapis told "Trading Nation" on Wednesday. "This is a long-term proposition."

GE is in the middle of a yearslong turnaround plan that aims to shed or spin off businesses not tied to its core industrials operations. Most recently, the company is reportedly exploring a sale of its power conversion business.

"Once they clean up the balance sheet it's going to look much better and I think it could be as much as a five-bagger in five years once they recover," said Schlossberg.

A five-bagger stock is one expected to rise by five times its current price. Such an increase would put the shares at $62.40 in what would mark a record high. GE last made an all-time high of $60.50 a share in August 2000.

Not all former Dow stocks fare so poorly after their removal. In the two months after Honeywell was removed from the Dow in February 2008, the shares climbed 7 percent. Altria, which was removed at the same time, was down 1 percent.

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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 CNBC and 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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