Source: PaxForex Premium Analytics Portal, Fundamental Insight
Investors are sincerely hoping that 2023 will go better than 2022, and after a first day of weak results earlier in the week, it looks like Wall Street may finally be contributing. Futures contracts on major indices rose two-thirds of a percent in morning trading, reflecting the ongoing tug-of-war between optimism and fear.
One of those companies that can scare a lot of shareholders is General Electric. The stock price of this conglomerate was much lower than it was on Tuesday, but investors did not suffer immediate losses as a result. Instead, GE's new stock price reflects a major corporate move that will give investors a separate look at a portion of the company's business that, until now, has been integrated under the conglomerate's massive corporate umbrella.
General Electric shares were trading at about $67 a share Wednesday morning. That's below the closing price of nearly $85 a share Tuesday afternoon, as the new value recognizes the fact that part of the company will become available to investors as separately traded shares.
GE announced Wednesday morning that the spin-off of its GE HealthCare division is complete. The new company will begin trading on the Nasdaq stock market under the ticker symbol GEHC, while the rest of General Electric will continue to be available on the New York Stock Exchange under the ticker symbol GE.
Under the terms of the spin-off, existing GE shareholders received one share of the new GE HealthCare for every three shares of General Electric they owned. General Electric also retained just under 20% of GE HealthCare stock, ensuring continued participation in the healthcare business even for those who would invest exclusively in General Electric stock in the future.
Because of the division's structure, the new stock will not create a taxable event for shareholders. Instead, the cost base for tax purposes will be split between the new GE HealthCare stock and General Electric stock.
General Electric has been talking for more than a year about its plans to spin off the healthcare business from the rest of the conglomerate, and investors are hopeful that the spin-off will achieve its intended goal. By focusing on precision medicine, GE HealthCare should be better able to manage its business operations, make its own strategic acquisitions and manage its financial health in line with industry demands. Meanwhile, shareholders had hoped that GE HealthCare would trade at a premium valuation, offsetting what many considered a discount for being part of a larger conglomerate structure.
General Electric, however, was not yet finished. The original plan called not only for the spin-off of the healthcare business but also for the division of the remaining company into two parts. GE Aerospace will incorporate the company's extensive aviation assets, while GE Vernova intends to continue sustainable development by producing carbon-free energy through General Electric's energy business and renewable energy sources.
However, investors will have to be patient. General Electric doesn't plan to complete the split into three separate parts until early 2024, as the companies have yet to work through the separation of assets and liabilities in a way that will keep investors in all three businesses happy.
It's always a little scary when the price of a stock you own suddenly drops. However, General Electric shareholders got new stock in GE HealthCare, and they are hoping for good performance from both companies through 2023 and beyond.
As long as the price is below 76.50, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 71.01
- Take Profit 1: 67.00
- Take Profit 2: 63.00
Alternative scenario:
If the 76.50 level is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 76.50
- Take Profit 1: 80.00
- Take Profit 2: 85.00
