General Electric Co. (GE) has been a dumpster fire.
The stock is down roughly 55% over the past 12 months. Shares couldn't gain any traction, closing just two pennies off session lows at $13.64, down 3.06% for the session.
Earnings, cash flow and a massively underfunded pension fund have many investors worried about the long-time industrial stalwart.
While GE was once a dividend-paying industrial titan, it's clearly lost its way. Even after halving its dividend in November, some investors still worry that another cut could come down the road. GE seemed like a safe, low valuation dividend-paying company. Obviously new revelations prove anything but.
JPMorgan analyst Stephen Tusa has been bearish on General Electric through most of the stock's slide. Last week, he had more bad news: Earnings expectations are likely too high. He continued to cite the company's balance sheet and cash flow woes as catalysts for a lower stock price.
As a result, he cut his target from $14 to $11. For reference, the average analyst price target is up around $17.
With GE stock hitting new lows as we speak, the question now becomes, how far will it fall?
It's clear that GE stock remains too risky for retirement accounts, at least from a single-stock perspective. No longer can we depend on its cash flow or its quarterly pay out. Its low valuation and prior yield have done nothing to keep its stock price from falling. Investors who want dependable income from industry stalwarts should consider names like PepsiCo, Inc. (PEP) or Johnson & Johnson (JNJ) .
What we need to see is GE stock rally on bad news -- which it's done several times -- but then to sustain that rally going forward. Should that happen, investors can look to get long General Electric once again.
Three Options Strategies for GE Stock
Can we enhance its performance?
We can, and one way to do it is with options. However, options use leverage, which not only means more risk, but also more difficulty in timing the trade. That may not fit in with some investors' risk profile. But for those who it does, it can be a great way to make up some of these losses.
For instance, those looking to add to their position can consider selling cash-secured puts at lower strike prices. Should GE continue to fall, those put-sellers will add to their position at lower prices. If the stock stabilizes and/or rallies, they will get to keep the premium they collected for selling those puts.
Investors looking to increase their income from a position they already have in GE stock can sell covered calls. This will allow them to enhance the income they already receive from GE's dividend. If done in conjunction with the cash-secured put selling (only for those with a current long position and wanting to buy more), investors can bring in a reasonable amount of monthly income.
One thing to note, though: If there's a strong rally in GE stock, the covered call strategy can "call" away our stock too early. This forces us to miss a potentially large rally. Nothing is worse than sitting through 50% losses, only to miss the "big one" because we tried to collect a 5% return via covered calls. Keep this in mind when selling covered calls.
Last but not least, when the eventual bottom does come to fruition -- be it at $13.50, $11 or even lower -- investors can look to get long GE via deep-in-the-money call options. Requiring just a fraction of the capital that is required to buy 100 shares of GE common stock, investors can load up on the name and ride a strong rebound in the industrial giant.
Should the rally sustain and GE go on a multi-month rally, this strategy could net investors big-time profits. Only time will tell, though, as to when that bottom will come. Next month is a possibility. GE reports earnings on Friday April 20, and has a shareholders meeting on Wed. April 25.
Subscribe to our Youtube Channel for extended interviews, Cramer Replays, feature content, and more!