Thursday, January 16, 2014

General Electric Sentiment Suggests More Upside for Industry

General Electric (GE) beat the S&P 500 by nearly five percentage points in 2013, but the stock hasn’t been getting much love from investors. Is that good news for General Electric and other industrial stocks?


Yes, says Deutsche Bank’s John Inch and Karen Lau. They explain:

…our positive calls on GE last year were frequently met with resistance (to be polite). Despite GE's share price appreciation that was driven by earnings beats and new management (CFO) providing a framework for meaningful cost-out runway (for years) and shrinking GE Capital (Retail Finance IPO and subsequent exchange offer), there appears to be little evidence that investors have significantly moved to close their long term GE underweight positions (hence providing future upside). With GE remaining the biggest industrial (by far), it therefore intuitively seems hard to argue the group is over owned (and over loved).

That negative sentiment “flashed as a positive indicator,” Inch and Lau say, and some stocks appear to be “‘locked and loaded’ to meaningfully exceed forecast estimates.” Those include Rockwell Automation (ROK), Eaton (ETN) and Emerson Electric (EMR).

Shares of General Electric have fallen 0.9% to $27.11 today, while Rockwell Automation has risen 0.6% to $119.60, Emerson Electric has advanced 0.2% to $69.91 and Eaton down 0.1% at $76.39.

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