On Monday I laid out a short thesis why IBM, a large cap U.S. multinational that has lagged the broad market and its peers, possibly due to its heavy revenue exposure overseas could benefit from a rotation of domestic names as the global growth reflation theme catches a little steam.
GE is another company that could fit that bill. The stock has lagged the broad market, possibly as a result of rising rates making its 3% div yield look less attractive. In 2012, GE received more than 50% of its sales from overseas, with much of its expected growth coming from Europe and Asia, 2 regions that have obviously been depressed for the last couple years. Another reason for its recent under-performance could be the fact that on a valuation basis, GE is trading on a trailing PE basis at the high end of its 5 year range on expected growth of only 9%.
On purely a technical basis the 2 year chart is a work of art, if u are into higher highs and higher lows over a sustained period. The chart below shows how it has held the uptrend that has been in place since late 2011, while basing btwn 22 and 24 since the spring. The breakout in the summer obviously failed, but the fact that it held key support at its 200 day moving average last week could set up for a meaningful test of the previous highs, and possibly the mother of all breakouts.
On a VOL basis, realized (white) has dropped to 52 week lows, while implied (blue line) has stayed reasonably bid as macro concerns from Syria to Taper remain in the market.
EVENT: GE has confirmed their Q3 earnings date of October 18th, which falls in October Expiration, and options look dollar cheap to me.
TRADE: GE ($24) Bought Oct 24 calls for .47
Break-Even on Oct Expiration:
Profits: Above 24.47
Losses: up to .47 btwn 24 and 24.47, max loss of .47 below 24
Trade Rationale: Ideally I was targeting a level closer to 23, but the technical set up is so attractive, if the SPX heads back to or even makes new highs, a stock like GE should participate and possibly outperform if in fact the global economic continues to get better. If the stock makes a quick move prior to earnings I will be inclined to spread these calls by possibly turning into a diagonal calendar (selling a higher strike call of a shorter dated expiration) or into a vertical (selling a higher strike call in the same expiration).
I am starting small in this position as the market looks a little extended after 7 consecutive up days, I will look to add on near term weakness as we head into the FOMC meeting next week.