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Baker Hughes Stock Is a Top Idea at Bank of America. That's Good For GE. -- Barrons.com Baker Hughes Stock Is a Top Idea at Bank of America. That's Good For GE. -- Barrons.com Dow Jones By Al Root Bank of America might be lukewarm on General Electric stock, but it is bullish on something GE owns a lot of: Baker Hughes. Analyst Chase Mulvehill put Baker (ticker: BKR) on the "U.S. 1" list -- a collection of the bank and brokerage firm's best ideas. He rates shares Buy with a $29 price target, 30% higher than recent levels. That's the second focus list Baker has been named to. Goldman Sachs analyst Angie Sedita has Baker on her firm's Conviction Buy roster. Sedita's price target is $34 a share. That's good news for General Electric (GE). After all, the company owns more than $8 billion worth of Baker shares. Andrew Obin -- the analyst covering GE for Bank of America -- however, still has a Hold rating on that stock. "In a sector lacking near-term fundamental reasons to be enthusiastic, we see a structural bull case building for Baker Hughes," wrote Mulvehill in a recent research report. "Especially as the energy sector enters a transitional period that focuses on (1) cleaner energy and lower emissions; and (2) digital transformation across all energy value chains." Oil prices -- a key sales driver for all energy companies -- are up about 30% year to date, but remain down about 20% from recent highs. But Mulvehill points out that Baker is strong in technology used in natural-gas production, where activity is better. Baker is also well positioned to sell artificial intelligence, or A.I., solutions to energy companies. It has a joint venture with C3.ai, which runs process-optimization algorithms on the Microsoft (MSFT) Azure cloud-computing platform. That's the good news. Yet Mulvehill worries about the overhang from GE's ownership stake in Baker. GE will sell its position eventually, making a lot of stock available on the market. The potential headwind, however, is temporary and isn't enough to prevent him from calling Baker a top pick. GE owns about 380 million shares of Baker Hughes. Baker shares are down about 7% over the past three months, potentially creating a paper loss for GE when the company reports its next quarterly results. GE has to recognize gains and losses on Baker stock now that it no longer holds a controlling stake in the company. On the positive side, if Baker stock were to hit Mulvehill's target price, GE's Baker stake would be worth another $2.5 billion. That is a lot of money, but it is only about 2.5% of General Electric's market capitalization. Not enough, apparently, to move the needle for Bank of America's Obin. He has a Hold rating on GE stock, with a price target of $11. That is very close to recent trading levels. The differing opinions on both stocks illustrate a broader theme in the coverage of both companies. GE is a controversial name on Wall Street. Only 43% of analysts covering the company rate shares at Buy, and price targets range from $5 to $14 a share. The $9 spread is about 80% of the current stock price, almost twice as wide as the typical bull-bear spread for stocks in the Dow Jones Industrial Average. About 85% of analysts covering Baker Hughes, on the other hand, rate shares Buy. The average price target is about $29, while the figures range from about $26 to $34 a share. The $8 spread is only about 36% of the current Baker stock price. Baker shares were up 0.6% in Tuesday trading. GE shares had gained 0.2%. Interestingly, the gain in GE stock, in terms of total dollars, is about three times the size of the value picked up by the move in Baker. And the S&P 500 is flat. It is tough to figure out exactly what moves a stock on any given day. |
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