By Scott Malone
BOSTON (Reuters) - General Electric Co <GE.N> shares crossed into positive territory for 2009 on Wednesday, in their third day of steady gains, helped by recent brokerage upgrades and easing investor concern about its finance arm.
The shares of the largest U.S. conglomerate rose 6 percent, or $1, to close at $17, the highest since January and almost three times the 52-week low of $5.87 set in early March. Trading was accelerated by options investors who wanted to make sure they received the company's upcoming dividend.
The move reflected investors' growing confidence that the company's hefty GE Capital finance arm had weathered the financial crisis and that its large industrial businesses would benefit as the world economy begins to climb out of recession.
"If folks have been reluctant to be in the market, maybe they gravitate to something that has been underperforming until recently," said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio. "Folks are looking at the glass as half full, rather than half empty."
GE shares have risen about 15 percent over the past month, outperforming the 2 percent rise of the blue chip Dow Jones industrial average <.DJI> and the 8 percent rise of the Standard & Poor's capital goods index <.GSPIC>.
The shares are still down about 35 percent over the past year, a deeper slide than the 11 percent decline of the Dow.
Option traders exchanged about 2.2 million contracts in GE on Wednesday -- nine times the average daily volume -- according to option analytics firm Trade Alert. The volume was dominated by 1.93 million calls, granting investors the right to buy GE shares at a fixed price within a specific time.
Traders were scurrying to convert their call options into shares before Thursday -- the date at which they would no longer be eligible to collect GE's upcoming dividend.
"Most of the call activity is related to a strategy designed to capture GE's 10-cent quarterly dividend," said Trade Alert President Henry Schwartz.
Investors also said GE's large presence in China -- which is poised to be one of the first economies recover significantly from the global recession -- gave them confidence the company could see an uptick in demand.
"They have a lot of business in Asia that is going to recover sooner, we believe, than the United States and Europe," said Douglas Ober, chief executive of Adams Express Co, of Baltimore, Maryland, which owns GE shares.
Perry Adams, senior portfolio manager at Huntington Private Financial Group in Traverse City, Michigan, concurred that an Asian recovery could boost GE's prospects.
"That bodes well for GE," Adams said. "GE was thrown into the same pool as a lot of more suspect financial institutions, but historically, their risk management and underwriting has been more sound."
Options traders were also betting that GE would benefit from an economic recovery.
"Option investors seem to employ the philosophy you can not be long the market without being long GE," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group. "They have continued to pile into GE bullish call options yesterday and today, indicating that the shares will soon be back over $20 by year-end."
Multiple brokerages have raised their GE ratings or price targets this month.
Bernstein Research on Tuesday raised its price target on the stock, which it rates "market perform" to $17 from $16. Hillier Lyons, however, cut it to "long-term buy" from "buy," warning that recovery would be slow.
Earlier in the month, J.P. Morgan raised its rating on the shares to "overweight" from "neutral," raising its price target to $17 from $12.
GE shares trade at 16.2 times forecast 2009 earnings, a premium to the 15.2 forward price-to-earnings ratio of the Dow. A test of these levels will come next month, when the world's largest maker of jet engines and electricity-producing turbines reports third-quarter financial results, investors said.
"People are trying to discriminate what is a survivor and is this being fairly valued," Klein said. "My take on it is $15 to $18 is fairly valued and if folks think that's the case they are probably willing to bid it up into the low $20s."
(Reporting by Scott Malone in Boston, additional reporting by Doris Frankel in Chicago; Editing by Andre Grenon and Richard Chang)