March 1, 2021

Why General Electric Stock Is Up Today

Why General Electric Stock Is Up Today

What happened

Shares of General Electric (NYSE:GE) gained more than 5% on Monday after Boeing (NYSE:BA) received an important new order for its 737 MAX aircraft. A GE joint venture makes the engines for the MAX, meaning an increase in orders for the plane should benefit GE as well.

So what

General Electric shareholders have endured a prolonged period of underperformance, with the stock off by more than 52% over the past five years. That’s actually an improvement over where the stock was a few years ago, as investors are beginning to see the benefits of a long-running restructuring plan.

Image source: General Electric.

GE’s aviation business was supposed to be one of the top performing units inside the industrial conglomerate, but that all changed last year due to the pandemic. Airlines went from focusing on expansion to focusing on survival, and that meant less demand for engines and other products.

The aviation business got a boost on Monday when United Airlines Holdings added to its 737 MAX order and said it plans to take 45 of the 188 planes it has on order ahead of schedule. CMF International, a joint venture of GE and Safran, make the engines for that plane.

Prior to the pandemic, the 737 MAX had been grounded following a pair of fatal accidents, threatening to drain a lot of potential profit for both Boeing and GE. General Electric lost about $1.4 billion in 2019 due to the 737 MAX grounding, and will be eager to see demand return for the once-promising aircraft.

Now what

The good news from GE Aviation comes at a time when investors are already seeing some small reason for optimism surrounding GE. The company’s wind turbines and other renewable energy businesses are likely to be an important part of a push out of Washington to lessen the nation’s reliance on fossil fuels, which could help jump-start units that have underperformed in recent years.

This time last year, prior to the pandemic, aviation looked like a big part of the bull case for GE. That changed in the months that followed. Slowly but surely, we are seeing signs the worst is over for GE Aviation as well.

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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