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Why General Electric Stock Jumped 11% in June

By Reuben Gregg Brewer - Jul 4, 2019 at 9:12AM

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The wheels fell off in 2018, but it looks like things are getting better (or at least not worse) in 2019.

What happened

Shares of General Electric ( GE 2.40% ) rose 11% in June, according to data provided by S&P Global Market Intelligence. That easily beat the roughly 6% advance for the S&P 500 Index. It also continued a trend that saw the stock rise by nearly 40% in the first half of 2019, versus the S&P's 17% increase. The big story here is that GE has largely stopped making negative headlines.

So what

In late 2018, General Electric transitioned to a new CEO, ousting a company veteran and bringing on outsider Larry Culp. It was something of a surprise to the market, but Culp had successfully turned around Danaher, a smaller industrial player, so investors and industry watchers were generally supportive of the change. That said, just about everyone was worried that the shift meant GE was in worse shape than originally thought.

Two men looking at blueprints with an industrial facility in the background

Image source: Getty Images.

Culp quickly confirmed those concerns with a series of disconcerting comments and strategic moves, including plans to sell assets, take asset writedowns, and lower the dividend to a token penny per quarter. After initially rising on the CEO change, the stock was actually lower by around 37% by the end of 2018 from the day of the announcement. 

With a broad stock market rally in 2019, GE's shares began to rise. But the news flow also turned a corner. That included the sale of a portion of the company's healthcare business, which helped alleviate fears over the industrial giant's heavy debt load.

The outlook solidified even more in June. In an update, Culp confirmed that 2019 would be a difficult transition year, but also outlined more definitive plans for the future. Importantly, the turnaround effort appears to be on much stronger ground than it was just a few months earlier. Investors are reacting to the positive directional shift by driving the stock higher.

Now what

Despite an increasingly positive view on Wall Street, the company is still a work in progress. As a turnaround situation, most investors will probably be better off avoiding it. But those with a little more risk tolerance may find the increasingly positive outlook attractive. Just remember that 2019 is still a transition year, so there could easily be more negative surprises before 2020 arrives.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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