Will Competition, Cost, and Uncertainty Extend GE's Pullback?
By Andrew Keene Jan 17, 2013 1:33 pm
While some investors appear bullish going into tomorrow's earnings announcement, it appears there is room remaining on the downside.
General Electric (NYSE:GE) was one of the strongest Dow (INDEXDJX:.DJI) components in 2012 with a 14.32% gain on the year, but has pulled back 8.65% from its $23.12 high on October 5, 2012. While some investors appear bullish going into tomorrow's earnings announcement in light of recent upward revisions by analysts, it appears there is room remaining on the downside.
The recent renewal of the Production Tax Credit is expected to bolster GE's wind-turbine business, but its position in this market is coming under increasing attack by Chinese competitors like Goldwind (SHE:002202), Sinovel (SHA:601558), and United Power (HKG:0674) as well as India's Suzlon (NSE:SUZLON).
Other concerns for GE include the legacy cost of pensions associated with an aging workforce, and remaining balance sheet exposure to issues from the 2008 financial crisis. Finally, GE's ties to the defense industry don't provide the rosiest of outlooks in the face of the pending debt ceiling and sequester.
My Trade: Selling the GE Feb 21-22 Bear Call Spread for $.42
Risk: $58 per 1 lot
Reward: $42 per 1 lot
No positions in stocks mentioned.