So, you were feeling optimistic about Ford's (F) Q4 earnings. Rather than taking your gains while you had them, you decided to try to stick with Ford through the earnings report in an attempt to squeeze even more gains out of this rally. As you now know, this move did not play out in your favor, in fact, it was disastrous. Ford's stock fell nearly 5% in one day. I hope you did not panic and sell. If you bought shares of Ford on this pullback, you are going to be very glad you did.
Ford reported top notch Q4 earnings, however these earnings were overshadowed by the $732 million lost in Europe this quarter. This number was surprising because Ford had only lost $404 million in Europe in Q3. After the Q3 losses, Ford made it clear to the public that the company was looking to restructure and cut debt in Europe.
I did not expect the Europe situation to show immediate recovery, but I also did not expect European debt would almost double this quarter. After further examining the cause of Ford's European debt increase though, it looks as though Ford was prepared for the poor European figures in its last conference call. Ford expected that there would be further losses in Europe before the debt began to decrease. The company knew that there was a cost to restructuring the current situation overseas. According to the conference call, Ford had already expected that about $500 million of the total $2 billion lost in Europe this year would be strictly restructuring costs. Ford had also made an earlier statement that it expected total European losses to be around $1.5 billion in October for fiscal 2012. Ford was well prepared for these poor figures, and investors should have seen it coming.
Ford had a minor reverse in its momentum, and has been slightly bearish since its last earnings report. No one knew for certain how far Ford would pull back, but as it turns out, Ford did not pull back much at all. Some analysts had speculated that we would see Ford return to sub-$12 levels again. Ford did not fall through the $12 mark, and bottomed out around $12.13 per share. Patience was rewarding for investors, as Ford has now broken $13 per share and appears to be heading higher. In fact, investors that did not overreact to earnings were rewarded with an opportunity to buy shares of Ford at a discount.
Ford is positioned well for long-term growth going forward. The stock carries a PEG ratio under 1, has a P/E ratio of a 9 compared to a 12 for the rest of the industry, and yields over 3%, although gross margins have declined a bit the past couples quarters, which is a cause for concern. This is mainly due to an increase of structural costs with new products being developed.
Do not expect Ford to be a miraculous turnaround though, because until the fiscal European situation is resolved or shows significant progress this stock is bound down. Ford estimated last year that 2013 European losses would match its 2012 levels, although I find it hard to believe that Ford will lose another $2 billion in Europe for the second year in a row.
Ford is going to offer great short-term value though, if you don't mind buying and selling the stock for smaller gains. Opportunities are going to be plentiful with Ford this year though so be patient, buy on dips, and sell on run-ups, like the run-up we saw in January recently. The Ford chart is starting to look bullish again. Recently, the MACD crossed over the signal line and is closing in on the centerline. While I don't see the signal line crossover as the best indicator for bullishness, the centerline crossover is usually consistent with a short-term increase that can last days to weeks. If we see a centerline crossover on the MACD, it could give Ford's stock a well deserved short-term pump.
Disclosure: I am long F.