Bull v. Bear: GEV Backlog Sees AI Support, Valuation Surge Raises Concern

get your podcasts. Welcome back to Fast Market here on Schwab Network. GE is set to report its quarterly results before the opening bell on Wednesday. Wall Street is looking for revenue of more than 10.7 billion, with investors also watching for ongoing margin strength and strong order growth. Analysts say the big story will be demand for power, equipment and electrification, as utilities and data centers continue to drive massive investment in the electric grid. Bank of America projecting orders will top consensus, led by the power and electrification segments, while over at Jefferies, they believe gas turbine demand remains strong. Shares have rallied more than 65% year to date, so investors will be looking for another strong quarter to justify the stock's valuation. All right. Time now for the tug of war on GE Voronova. For that let's welcome back in our co-host Tom White and Kevin Hanks. Guys it is bull versus bear time. So before we get to each of your examples, it's got to get each of your take on G. Voronova Kevin, I'll start with you. Your take. You know, this is, you know who thought when GE was splitting up the company, that energy, which was always kind of the dead weight of this company, would be one of the great growth aspects of the company. They are a leader in new in in nuclear energy right now. And they're building I want to get it right. The BWRX 300 small molecular reactor that's going to be very popular. Now, it's not making a lot of money yet, but it's expected to post 2026. Start bringing in, you know, north of $2 billion a year. And so if energy and nuclear energy is the future to what we're looking at with all our energy needs. G Voronova remember, we used to love GE healthcare, we used to love GE jet engines and the regular GE. This one might be the biggest grower of them all. And it's it's a fascinating story how like I said, this one was the one that that was kind of the throw away with the energy. And now it's one of the stronger parts of this company. All right, Tom, your take. Well, you look at all the billions of dollars these hyperscalers are using to build out their AI data centers and stuff. Well, you need energy for that. And the grid is not capable of that. You mentioned they're the world's biggest producer of natural gas turbines, right. Well, they've already filled slots into 2030 going into 2031 for the build out to those. So their backlog continues to increase. I believe last quarter was about $163 billion at this point. Q one orders last quarter surged 71% organically on a year over year basis. So yeah, the backlog continues to grow. And then, guys, you throw in the fact that they've got to service all this equipment that they're selling, right? They're just not only in up in a turbine creation. Also, they're, you know, in services, they're in electrical systems that they're using. So I think the backlog is what you have to focus on the margins that are increasing. I believe margins last quarter were over 51%. That was far above what they anticipated. So when you look at 850% gains from two and a half years ago, when they got spun off over the, you know, the last two and a half years, it kind of tells the story of where, you know, money and, and investments needed in this AI tech build out that we've seen. And they're in the crosshairs of it. And, and if they keep, you know, increasing that backlog increase, keep increasing their pricing, improving those margins moving forward. That's why you've seen such big, what, 67% gains so far this year, 92% gains over the last 12 months. Yeah. This stock is performing really well. But the bar is high in this one. Going into the report the bar is high and the stock is trading higher heading into it. We're up 1% today. Bank of America thinks it gets to 1310. That's their price target. So they're obviously very constructive on this name. Now the one thing they point out is expected weakness in wind. But they expect that to be more than offset elsewhere. Let's get into the example trades. Kevin let's start out with yours. What's your approach today. So the the the look is for about a $66 move up over the next day. The stock is trading about 1090. And you're right. The big question is the valuation and how far this stock has run. And so if you think maybe the earnings could come out and then there could be some softness there. That's why I looked at remember 1090 about $66. I sold the 1150 call and bought the 1160 call. Sold the $10 call vertical just expiring on Friday the 24th. I put it in for about 390. It's trading about three 33.5 that that that range. Diane and Tom. And this is just a high probability short call vertical that's collecting theta. And of course his risk defined. And with the level in line right. Pretty much in line with the expected move. Tom collecting 330. It's a pretty good risk reward for for a high probability short call vertical. Tom. Yeah, I think you make a good point. This is over $1,000 stock price discovery warranted on any strategy you're doing in here. Because the individual options on the bid ask are $5 wide. And maybe they should be just because it's a really high priced stock at this point. But let's break down Kevin's example trade. It's neutral to bearish going out to the July 24th weekly options that expire in just three days. So an earnings type example here sell the ten the 1150 strike call. And then against it because we want to stay risk defined by the 1160 strike call short $10 wide neutral to bearish call vertical collecting roughly about a 390 credits. What we've got here as I mentioned, price discovery warranted because the markets are really wide in here. So even though the midpoint might be 330, you might be able to get 390 or $4 for this. But if you collect a 390 credit, that's what you can potentially make $390 per spread with that, with about $610 in risk on that position. Now it takes your break even up to 1153 90 to the upside. I think one of the keys, when we talk about trade offs and risk reward, you're risking 390 or you're risking 610 to make 390 on a trade like this is the fact that you've got a higher probability of success on this type of trade, about a 72% probability that that short 1150 strike will be out of the money at expiration. So that's the goal on this type of position, is that the stock remains below 1150. And the short call vertical goes out worthless. And you just get to keep the credit that you collected the markets open and then contracts and price, you could always close it ahead of expiration. Also if that if the market allows at that point. So keep that in mind. But this is neutral to bearish with the expectation the stock is not going to not going to rally that much. It's about that one standard deviation to that break even above the current share price. That plus or -$66 move that Kevin mentioned in his example trade. Kevin. I flipped it and I went passive the same way that you did. But I went neutral to bullish. I think these this is a good lesson for our viewers out there is you can still take a directional bias by using out of the money verticals to take that and give yourself better probabilities of success. I went out to that same July 24th. Weekly options expire in three days and just sold it out of the money. Put vertical stocks trading 1190, about 66 bucks lower is about 1130. Right. A little bit more than that. So I sold the 1030 strike put and bought the 1010 strike put. So a short $20 wide neutral to bullish short put vertical collecting roughly about a $5 credit. You might collect more than that. You might collect 550 on that. You might collect six bucks. As we mentioned price discovery warranted. But if you collect a credit of $5, that's what you can make 500 bucks per spread with $1,500 in risk. So you got a lot more risk than reward, but you've got a better probability of success on this because you're selling it out of the money. Short put vertical. Kevin, your thoughts here as we use the same strategy to make directional biases, but at the same time, we've both got pretty big cushions to our break evens. Exactly right. Understanding that calendar spread different kinds of spreads like that. There's big premiums in these options, but the measured strike prices, like a $10 call vertical like mine or a $20 put vertical like times you control the risk. You play with smaller numbers. Now, there's still risk in this trade. Mine's $10 times $20 wide. That's why he collected a little more. But his risk is a little higher. Those are the trade offs you go through every day trading options. But a very similar idea. One bullish to neutral, one bearish to neutral Diane. All