Opportunity in GE

It's the day after Halloween and GE has provided plenty of scary moments over the past few months. When you look at the recent events of the once largest global conglomerate, there doesn't seem to be much to be bullish about. From gas turbine fan blade failures, cutting the revered dividend to one cent, ousting CEO John Flannery and watching the stock drop to it's freshest lows since 2009, investors have been left wondering about the future of the company and what GE will become.

They've been stressed on their balance sheet and Flannery's strategy was to break up the company and sell assets to manage debt, cash flow and growth in a few concentrated areas. Enter Larry Culp, the new CEO of GE and a previous Board Member.

You can read all about the CEO change and his background at Danaher on the web, we believe he is the catalyst that GE needs to turn the company around. UBS upgraded the stock yesterday to a buy, and while one upgrade doesn't make a meaningful difference we'll explain why we like the long side on this stock. GE needed to cut the dividend, and it took an outsider who didn't care about the market reaction to make it happen. In addition, GE has some great assets such as healthcare, transportation, aircraft engines, etc... that have relatively large moats and growth left in them. Their Power unit has been struggling and there's no reason why they can't figure out how to fix that too. GE has many options from turning units around, selling under-performing assets, restructuring units and choosing what they want to be in the future. This is a pivot point in the company and we believe that the sum of the parts story gives investors some downside protection on this stock, and there's upside gains ahead for GE.

We are buying the January 2020 $15 Calls on GE for $.50 cents, which give us 14 months to participate in any rally from it's current level at $10.00. The risks are that the company trends lower and never gets close to $15 in which case we'd lose on the options, however, any rally should yield a positive return on these Calls.