as part of our
One of the most difficult things for an investor to do is to buy
when a stock is up. Everyone loves a sale, and no one wants to pay
When it comes to shopping, that makes sense. However, there are
times when it comes to stock picking that one needs to pay full
price. The reason is that stocks can continue moving up in price,
which ends up being a situation in which the previous "full" price
was actually a "sale" price.
Let's talk about Ford Motor Co. (
). Ford's stock price has been on fire over the past year. Every
time it moves higher, I hear people saying "yes, but I want to buy
on a pullback" and it never comes.
Taking a look at the fundamental situation, readers who follow
the market and the economic data already know that car sales are
rocketing up. With vehicle sales moving up from approximately 10
million units in 2009 to 16 million units estimated for this year,
that is a huge jump in demand.
Now that the Federal Reserve is keeping interest rates low for
an extended period of time and not reducing their asset-purchase
program, this is a positive to several sectors. Obviously, most
vehicle buyers pay through financing, and lower rates are
attractive there. But the housing recovery is also based on
interest rates, and the more homes that are being built, the higher
the number of pick-up trucks needed to work on various construction
sites. Ford produces one of the top pick-up trucks in the industry
with solid operating margins.
Ford has made massive changes since CEO Alan Mulally came to the
helm. His leadership has been nothing short of extraordinary.
Unfortunately, he will be leaving the company at some point, but
the structural changes he made will last for many years.
The stock is trading at 10 times estimated 2014 earnings, which
is quite attractive since we believe both revenue and earnings will
exceed that figure. Another factor most people aren't factoring is
Europe. That continent has been extremely weak for many years, but
over the past few months new data is showing that Europe is
actually starting to pick up steam.
When investing, you have to know the existing situation and the
potential catalysts. Ford is continuing to grow, yet the stock
trades at an attractive multiple and offers a forward dividend
yield of over 2%. With interest rates set to remain low around the
world, we think the environment remains attractive for the
You don't have to be an expert in technical analysis to know
this chart is NOT one to short. While people are hesitant to buy at
the highs, note that in early May the stock was also hitting a
previous high point, which it quickly blew through.
Is a pullback possible?
Of course it is, considering the stock has almost doubled in one
year. No stock can keep up that pace forever.
The key is to buy a stock without rushing into a trade. Also
watch the trendline, because if that were to break, the stock would
most likely drop to the 200 day moving average.
With a stock like Ford up so much, yes there is even more upside
potential, but one has to be alert to any change in sentiment. With
some investors up 70% over the past year, any sign of trouble and
they'll be headed for the exits. Trading Ford, as with all stocks,
an investor needs an exit strategy and a stop loss.
This is a cursory look at Ford Motor Co. (
) and we are not making any specific buy or sell recommendation but
merely voicing our opinion of the current situation. Each
individual investor must conduct their own due diligence of both
the company, the market sector as well as their own financial
situation and risk parameters.
- September 20, 2013