After closing at the dead highs for 2013, also a 5 year high, GE has been a fairly dramatic under-performer in 2014, still down about 9% despite the S&P 500 back in the green and hovering just below all time highs.
From purely a technical level, and despite the poor relative performance GE looks fairly attractive. On a 1 year basis, the stock has consolidated just above the Oct Breakout of $25, and now sits above the all important 200 day moving average:
- GE 1yr chart from Bloomberg
From a vol standpoint, options are cheap trading just above 3 year lows:
- GE 30 day at the money IV over last 3 years from Bloomberg
One of the issues for GE could be valuation, despite earnings and sales only expected to grow about 3%, the stock has a PE of about 15x. The dividend yield of about 3.5% and the multi-billion share repurchase should help buoy the shares as the company continues on cost cutting / restructuring measures that include selling non-essential businesses.
If the stock market is back in 2013 mode (buy every dip and rising tides lifts all boats) then GE’s under-performance should prob be bought with defined risk. With sentiment poor, options prices cheap and the technical set up attractive I am merely going to buy a call in April that will catch the next identifiable catalyst, Q1 earnings on April 17th. I would look to spread these calls on a rally towards 27. I am not in a huge rush as I don’t see the stock getting away from here, so I am going to start small and pick at them over the next few trading days.
TRADE: GE ($25.48) Bought April 25 Call for .95
Break-Even on April Expiration:
Profits: Above 25.95, up less than 2% have unlimited gains.
Losses: Between 25 and 25.95 lose up to .95, below 25 lose full .95 or about 3.7% of the underlying stock price.
Rationale: If I were long GE I would be using $25 as a stop on the downside, the in the money call helps achieve this goal, I am stopped at $25.