Shares of General Electric (NYSE: GE) jumped 15% on January 25 after the company announced that it will sell its BioPharma division to Danaher for $21.4 billion. The initial joy dissipated somewhat. By the end of the day, GE stock closed at $10.82 for a net gain of 6.4%.

For most companies, a one-day increase of that magnitude would be cause for celebration. But for GE, it only gets its share price back to where it was three months ago. In between, GE stock scraped bottom below $7 in December while the stock market went in the tank. Since then, it has gained more than 50%. That makes GE one of the best-performing stocks thus far in 2019.

That being the case, investors are rightly suspicious that GE’s share price may reflect too much optimism. We still don’t know how it will be able to reduce debt and grow revenue at the same time.

GE will use the proceeds from the sale to pay down debt and strengthen its balance sheet. However, it will also eliminate annual sales of $3 billion from the company’s top-line revenue figure.

Will GE Stock Follows IBM’s Example?

In that regard, GE is facing the same dilemma that forced old-tech companies such as International Business Machines (NYSE: IBM) and Xerox (NYSE: XRX) to go through the painful process of paring down to avoid collapse. IBM has been sliding downward for the past four years. It just reported an increase in annual revenue in 2018 for the first time in nine years. The story is pretty much the same for XRX, which only recently has shown signs of life.

In that regard, we still may be only halfway through GE stock’s slide down the charts. Its share price peaked above $30 a little over two years ago. However, its decline has also been more dramatic, losing two-thirds of its value over that time. At their worst, neither IBM nor XRX lost as much as half their value over the past four years.

Also see: “Our Tableau Stock Prediction in 2019 (Buy or Sell?)” for why IBM may have also just bottomed out.

GE Stock Bottoms Out

I may turn out to be wrong about this, but I believe GE stock bottomed out two months ago. If I’m right about that, GE stock will never drop as low as $7 per share again (see stock price chart, comparing GE to the S&P 500 index over the past 12 months).

Unlike IBM and Xerox, General Electric is structured more like a true conglomerate. It owns dozens of unrelated businesses within its massive corporate structure. That means it will be easier for the company to sell assets. Eliminating one division should have no strategic impact on the others.

That explains why the company hired Larry Culp as its CEO last year. Before joining GE, Culp worked at Danaher, the very same private equity firm that just bought GE’s BioPharma division. Culp is a dealmaker with experience restructuring companies and improving balance sheets. He was the right person at the right time to take over GE and in a short period he has already delivered on his promise to make big changes.

That’s why I recommended buying GE stock in one of my trading services a few months ago. I was a little early in my call, but from a long term perspective I believe I will turn out to be within a few months of the absolute low in GE stock. Sure, we’d all like to be the one that presciently bought GE stock for $6.66 on December 11 (and let’s ignore the religious symbolism of that number). But when it comes to timing the market, pretty good is good enough if you know how to trade it.

Taking a LEAP on GE Stock

As a stock market analyst, I like to put my money where my mouth is. So, back when I recommended General Electric I bought a LEAP on GE stock in one of my personal accounts. A LEAP is an option that expires in more than a year. In my case, I bought a call option at the $10 strike price that expires in January of 2021 for which I paid $2.40 per share.

If I am wrong and GE falls back below $10 and does not recover by the time my LEAP expires, I will lose every penny that I paid for it. But if I am correct and GE stock continues to rise, I stand to make a lot of money. For example, if GE stock makes it back up to $15 over the next 23 months, I will double my money.

To the extent GE stock rises above $15 by the time this LEAP expires then my return of more than 100% would be greater than my potential loss of 100%. If GE stock gets all the way up to $20 then my option would have an intrinsic value of $10, more than four times what I paid for it. Of course, I own LEAPs on other companies in addition to GE stock. That way, I only need to be right on at least half of them to avoid a loss.

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