Exercise Patience Before Buying This Popular Stock
Things are looking up for General Electric, but now isn’t the time to jump in.
After decades of being one of the most popular stocks on the market, General Electric Company (GE) has seen its fair share of struggles over the last few years.
Things haven’t been the same for the massive conglomerate since legendary CEO Jack Welch left in 2001. Since that time, GE has seen its share price fall from above $55 per share down to just under $13 at the closing bell last Friday.
But GE has been a popular pick for a stock with huge comeback potential for more than a year now as the company has made several shrewd moves to get its house in order.
And for anyone holding GE stock for a long-term rebound play that wasn’t watching closely, yesterday’s opening price may have come as a huge shock.
Over the weekend, GE stock went from being worth $12.92 to opening at $104.48.
No, the market didn’t just suddenly decide that GE stock was worth 708% more than it had previously been trading for – nor was this the result of the latest short squeeze.
Instead, the reason for the massive surge can be credited to a rare event. In fact, it’s something that’s only happened five times since 2021 for a stock listed on the S&P 500.
But before you go jumping into GE stock, thinking that it’s a name on the rise, you need to know what’s really going on.
Where’s the money?
Yesterday, GE completed the 8 for 1 stock split that it had previously announced earlier this year.
For every eight shares of GE stock that investors owned, they now have just one. In return, the price of each share is multiplied by eight.
The move comes as GE seeks to bring its stock more in line with comparably sized competitors and make it more attractive to investors.
Since 2018, CEO Larry Culp has been making strides to right the ship. Culp has helped GE trim the fat, reduce spending, and unload entire underperforming divisions in recent years. He championed a major overhaul of GE’s finance business to reduce liabilities and ultimately lower the debt load from $80 billion to $30 billion over the next several years.
All of this points to a company that has re-focused on its core business in the hope of returning to its former glory.
And with the recovery in air travel poised to lend a hand to GE’s aviation engine business, plus the potential for an infrastructure bill to bring in millions more in revenue, GE is getting a lot of attention from investors right now.
While GE may well have a very bright future and ultimately make the comeback it’s been striving for, I want to warn you against buying in right now…
How do I get some?
In general, overperforming companies are the ones that do splits, and struggling companies that do reverse splits.
And while GE’s reverse split does help bring its stock closer to level terms with similarly sized companies, there is still a large discrepancy.
Currently, GE carries a market cap of $116 billion and has 1.1 billion shares outstanding after the reverse split.
For some perspective, 3M Company (MMM) has a market cap of $114 billion and just 578 million shares outstanding, but is currently trading at nearly $200.
Even GE’s closest competitor, Honeywell International Inc. (HON) – which has a slightly higher market cap at $161 billion – has 37% less outstanding shares but still trades at a 56% higher price than GE.
Now after the reverse split, people may be fooled into believing that GE is a $100 stock, even though the market cap has not changed.
As a result, I expect a slew of Put options being bought in anticipation of GE stock to moving lower once the reverse split hype dies down.
In fact, with GE already falling more than 2% from the open yesterday, I’m starting to pick up on large institutional buying of put options.
And when the time is right, a select few will get detailed info on which ones are the best profit opportunities.
Here’s how you can be one of them…
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In the Spotlight: In other comeback news…
After nearly two years of flagging sales and watching market share slip through its fingers, we’re starting to see a resurgence from one of the most well-known restaurant brands in Canada.
And even bigger things could be on the horizon.
Tim Hortons, which is owned by Restaurant Brands International Inc. (QSR) is showing it still has lots of fight left after posting Q2 sales that rose 27% over the prior quarter.
After a series of missteps involving its menu, Tim Hortons appears to finally be on the rebound. According to the latest earnings call, market share has slowly been creeping back up for Tim Hortons, especially in the chain’s important breakfast category.
And in what could spell a massive new revenue stream going forward, QSR announced that it plans to open over 200 new Tim Hortons locations in China this year.
Clearly, Tim Hortons is a brand on the rise after weathering a long, difficult pandemic in Canada. I’ve got my eye on QSR, and should the stock present any trading opportunities, you’ll be the first to know. Stay tuned..