GENERAL ELECTRIC SHARES PULLING BACK - TO ASPIRING LONGS' DELIGHT

Shares of General Electric

have been pulling back sharply over the last two weeks after a powerful bounce off of the October lows. At this point, technicians are calling the pullback a correction ahead of more upside. How far can GE stock fall before they change their opinion? Do the company's fundamentals support even more of a rally once the correction runs its course? Let's take a look… What the bulls like about GE… • The company pays a nice 3.4% annual dividend – although the payout ratio is very high at 68% (perhaps limiting the prospects for dividend growth in the near future) • Cheap valuation metrics: o Price-to-book of 1.94 o Price-to-sales of 1.79 o The enterprise value of nearly $625 billion easily trumps the market capitalization of $261 billion • 9.06% net profit margins that spin off just over $21 billion in levered free cash flow annually • A healthy current ratio (current assets vs. current liabilities) of 2.70 What the bears see in GE… • A P/E ratio of nearly 17 that is not justified by the 2015 estimates of flat revenue growth and only 7.8% EPS growth • A very heavy debt load as evidenced by the 260.7% debt-to-equity ratio and the cash vs. debt position of 10.9 / 374.1 The technical outlook for GE Technicians note that GE shares appear to be in the midst of an “abc” correction to the downside following the powerful rally off of the October lows. In order for that relatively bullish outlook on things to remain on the table, GE stock cannot close below the $25.13 level. Assuming that level of support holds up, the next move for GE is anticipated to be a rally up to approximately $30 - $32. Overall Those feeling they missed the rally in GE will be rewarded for their patience if they successfully buy into the stock at or near the $25.13 support level. GE no longer appears to be a “sell the rips” candidate.