There are many things to like about the world's fourth largest
For starters, it was the only major U.S. automaker able to skirt
bankruptcy during the financial crisis. And due to aggressive cost
cutting, it is on target to have one of its strongest years ever.
In the wake of
ongoing vehicle recalls, customers are understandably attracted to
this car company, which has an award-winning safety record.
As a result, October 2010 sales increased +15.4% compared with a
Of course, if you haven't already guessed, I'm talking about
Ford Motor Co. (NYSE:
In addition to strong fundamentals and a compelling valuation, the
technicals for Ford shares look very enticing.
Take a look at the chart below to see what I'm talking about...
Currently trading just under $16, Ford appears to be on a major
growth trajectory. The shares are on a major uptrend since hitting
a low of $1.50 in February 2009, climbing more than +980% to date!
This past November 1st trading week, Ford bullishly broke a
, formed by the major uptrend line and important resistance near
The stock busted through resistance and pierced the upper Bollinger
band, which currently intersects at $15.20.
According to the
for a triangle, calculated by adding the height of the triangle to
the breakout level, Ford should reach an initial price target of
$19.25 ($14.57-$9.89=$4.68; $4.68+$14.57=$19.25).
In late September, the 10, 20, 30 and 40-week moving averages all
began to converge around each other. Now, the 10-week moving
average has risen above the 20, 30 and 40-week moving averages -- a
The lower Bollinger band, which intersects near $10, marks a shelf
of historical support dating from January 2010.
The indicators are bullish. Since June,
relative strength index (RSI)
has been in an uptrend. It is currently well above its uptrend line
and rising. At 73, it has just become overbought; however, strong
stocks can become and stay overbought for long periods.
is on a buy signal. The MACD histogram is rising in positive
, although overbought, has not yet given a sell signal.
In late October, the Michigan-based automaker reported profits for
the sixth straight quarter.
Third-quarter 2010 revenue was $29 billion. Including the sale of
the Volvo brand, revenue would have been $30.7 billion. In the
year-ago quarter, revenue was $30.3 billion.
Due to strong pick-up truck sales, analysts expect Ford's full year
2010 revenue will inch up +0.8% to $119.3 billion, compared to
$118.3 billion last year, despite weak sales in Europe. By 2011,
analysts project revenue will increase a further +4.2% to $124.3
outlook is also bright.
In the most recently reported third-quarter, earnings increased
+48.3% to $0.43 per share, compared with $0.29 in the year-earlier
period. Growth was driven by higher profit margins on both cars and
Due to aggressive cost cutting, Ford is on target to have one of
its strongest years ever. Analysts project full year 2010 earnings
to increase to $2.03 from a flat $0.00 last year. By 2011, analysts
expect earnings will rise by a penny, to $2.04.
In addition to growth potential, Ford is also attractively valued.
Ford's trailing price-to-earnings (
) ratio is 9.7. By comparison, competitor
Honda Motor Co (NYSE:
has a slightly higher trailing P/E of 9.8, while Toyota Motors has
a trailing P/E of 19.2.
Ford also leads its peers from a price-to-sales (
) standpoint. Ford has a P/S of 0.4, while HMC and TM have slightly
higher P/S ratios of 0.6 and 0.5, respectively.
Ford is also rigorously working to reduce debt. Current debt is
around $22.8 billion, down from $33.6 billion a year-ago. By the
end of 2010, the company expects to have equal amounts of cash and
debt, which bodes well for its future operations.
Action to Take-->
Given Ford's solid growth outlook, attractive valuation and strong
technicals, I would go long on the automaker by purchasing the
stock and setting an initial target price of $19.25, as calculated
by the measuring principle, mentioned above. I recommend using a
stop-loss of $13.22, just below the current intersection of the
10-week moving average.
Based on Friday's closing price of $16.21, the risk reward ratio is
1.02:1, and traders stand to make +18.8% from this trade.
-- Dr. Melvin Pasternak
Dr. Melvin Pasternak is one of the most experienced market
technicians in the nation and Chief Trading Expert behind
Double-Digit Trading. With more than 25 years
experience... Read more.
Disclosure: Neither Melvin Pasternak nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.