The General Electric of old, a sprawling conglomerate, is no more. Today the GE ticker is fastened to GE Aerospace (NYSE: GE), a company focused on just one industry, aerospace and defense.
This more focused company is a worthy place for the iconic GE ticker to land. But is GE Aerospace stock a buy, sell, or hold today?
Reasons to buy GE Aerospace
After the long-established General Electric spun off several businesses into their own entities and sold off the rest to others, GE Aerospace remained. The company's core business is providing parts and services to the aerospace and defense sectors. It's expected to be a very good niche, at least as far as Wall Street is concerned. Some industry watchers project that the consumer aviation industry will add as many as 45,000 new aircraft over the next two decades or so at a cost of $3.3 trillion. GE Aerospace is well-positioned to serve this growing industry and capture a good share of that market.
Image source: Getty Images.
The company already has a $149 billion backlog of work to be done on the civilian side of its business. Add in another $18 billion from the defense side of the business and GE Aerospace's total backlog is well over $150 billion. That's a lot of work lined up to power the company's revenues and earnings over the next few years.
GE Aerospace was able to boost earnings by 25% year over year in the third quarter of 2024, which is hard to complain about. Powering the bottom line of the income statement was a 6% increase in revenue and a 150-basis-point jump in the company's profit margin. It looks very much like GE Aerospace is getting off on the right foot as it starts its stand-alone life (the final spinoff of noncore assets took place in April 2024). These are all solid reasons to consider buying the stock today.
Reasons to hold GE Aerospace
The reasons to continue holding on to GE Aerospace are basically the same as the reasons you might want to buy it. The company looks like it is well-positioned to take advantage of the expected long-term growth in the aerospace sector. But there's a caveat here. The stock price has roughly doubled in a year.
That's a very big move over a very short period of time. That period includes a span where GE Aerospace and GE Verona (NYSE: GEV), the last company it spun off, were still one entity. Arguably, the stock should have been worth more at that point. Interestingly, GE Verona's stock price has more than doubled since it was spun off in April. So, perhaps, the stock rallies here should be viewed with a bit of skepticism. There might be more emotion driving the price move than fact, even though GE Aerospace appears well-positioned to serve a growing market.
Still, if you think long-term and have a positive outlook for GE Aerospace's future, it probably doesn't make sense to sell the stock. That will likely remain true even if there's some price turbulence over the near term as Wall Street figures out the proper valuation (and thus price tag) to place on the company's shares.
Reasons to sell GE Aerospace
That said, if you are sitting on material profits, nobody would blame you for taking some cash off the table after such a quick run higher. Wall Street has a habit of letting emotions drive stock prices, and the penchant today is to reward companies that have slimmed down via business spinoffs and exits. Specialization is favored, at least for now (the trend toward conglomeration will probably come back again sooner or later). Capitalizing on investor enthusiasm would lock in your gains.
GE PE Ratio data by YCharts
As for buying the stock fresh or avoiding it, the question is a bit more difficult. After the strong third-quarter showing, GE Aerospace's price-to-earnings ratio is down to a reasonable 36 times (it was much higher not too long ago). That's just slightly higher than the 35 P/E average for the aerospace and defense industry, using SPDR S&P Aerospace & Defense ETF (NYSEMKT: XAR) as a proxy. So GE Aerospace looks fully valued. If you prefer buying stocks when they are cheap, this probably isn't the stock for you. And with a tiny 0.6% dividend yield, income-focused investors probably won't be attracted to it, either.
GE Aerospace is a complex story right now
There is a lot of information to digest when it comes to GE Aerospace because of the massive overhaul that has taken place with its predecessor General Electric. Still, GE Aerospace does appear to be moving in a positive direction within an industry that appears to have a positive future, which could be a reason to buy the stock. But a swift price advance and a valuation that is roughly in line with that of its peers suggest that there is, perhaps, no reason to rush out and buy it.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $22,819!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $42,611!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $444,355!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of November 11, 2024
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends GE Aerospace. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
