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General Electric shares are staging a come back today having sunk to 11.37 Wednesday. The company’s shares have been performing well for investors since November, when they jumped from 9.07. From 13 January General Electric stock had been seeing something of a slump but it looks like the shares have found some new life.

Looking at the 52 week view, anything above 11 looks like a possible buy for General Electric at current valuations. The latest value follows Morgan Stanley’s decision to upgrade General Electric to overweight. Influential Morgan Stanley analyst Joshua Pokrzywinski has set a new price target of 14.

Pokrzywinski is telling investors that the General Electric ‘story’ is shifting from being one of a company plagued by financial distress to a potential turnaround situation. He said the company’s management was ‘trimming the tails on risk’, particularly with pension and long-term care.

Time for General Electric to shrug off its woes

There has been some negative sentiment swirling around General Electric due to its exposure to the ongoing Boeing 737 MAX grounding saga. General Electric is part of a joint French-US consortium that is responsible for the engines in those planes.

General Electric is scheduled to provide fourth quarter earnings on 29 January. Wall Street is looking for improvements in its bottom line and will be focusing especially on the company’s cash flow forecasts as a measure of overall corporate efficiency.

Morgan Stanley seems to be placing a lot of emphasis on CEO Larry Culp’s turnaround plans. He has earmarked some $38 million in asset sales as he aims to pay off longer term debt and address the company’s pension liabilities. He has already inked a deal to sell Danaher Corporation, which is General Electric’s bio-pharma unit for $21 billion. Pension liabilities are expected to be reduced by as much as $8 billion. It had been facing a pensions shortfall of $31 billion as it struggled to meet the pension obligations of 620,000 employees.

General Electric shares could go a lot higher

General Electric shares could go a lot higher if Culp can tackle many of the issues that still reside within the firm. General Electric has not been a beneficiary of the Trump bull market that has lifted many blue chip share prices in the US. Indeed, GE shares seem to have been moving in an inverse manner to the S&P 500, giving up two thirds of their value in the space of 24 months.

General Electric has to look like a very interesting turnaround play for many fund managers and the Morgan Stanley re-rating and subsequent buying in the market today has the makings of a bit of a rally for the company. Bear in mind it is going to be reporting before the end of the month and there is still a lot of negative sentiment around this stock on Wall Street, and a lot of analysts still sitting on their hands awaiting the results next week.

Morgan Stanley re-rating aside, look at General Electric’s historic share price performance and you get an impression of how far this stock has fallen at a time when many US blue chips have been moving in the opposite direction. If Culp and his team can effect the turnaround they seem to be promising, even Morgan Stanley’s forecast could be outstripped.

We like the fact that he is addressing many of the core issues investors have had with the business in 2017-18 and divesting some of the more extraneous business areas to help address pension liabilities.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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