In the last article I wrote about Ford, I said I would buy more on dips but I never got a chance to buy more because I never saw it dip; in fact I sold my position to lock in some profits. I have been looking to buy more of something in the consumer goods sector and I've been searching far and wide for something which I can diversify into but I keep coming to Ford (NYSE:F). So I want to evaluate on a fundamental, financial, and technical basis if it's worth buying into Ford again right now.
Ford currently trades at a trailing 12-month P/E ratio of 11.47, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 10.16 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $1.67/share and I'd consider the stock cheap until at least $25.05. The PEG ratio (0.96), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 5-year horizon), tells me that Ford is inexpensively priced based on a 5-year EPS growth rate of 11.9%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. Ford boasts a dividend of 2.36% with a payout ratio of 16.3% while sporting return on assets, equity and investment values of 3.1%, 33.9% and 3.5% respectively; which are all respectable values. The really high return on equity value (33.9%) is an important financial metric for purposes of comparing the profitability which is generated with the money shareholders have invested in the company to that of other companies in the same industry. In addition to a high return on equity, if maybe you feel the market will retract a little more and would like a safety play, then the 2.36% yield of this company is good enough for you to take shelter in for the time being.
Looking first at the relative strength index chart [RSI] at the top, I see the stock in overbought territory with a value of 69.92. With the relative strength index chart in overbought territory, I anticipate a short-term drop in the price. To confirm that, I will look at the moving average convergence-divergence (MACD) chart next and see that the black line is above the red line with the divergence bars decreasing in height, indicating the stock may come on downward momentum. As for the stock price itself ($16.98), I'm looking at $17.08 to act as resistance and the 20-day moving average to act as support. If the stock can't break through the $17.08 resistance I see it going down to $16.27 and then possibly down to the 20-day moving average. However, if it can break through the $17.08 resistance level I think it can shoot for the 2011 high of $18.65. These scenarios provide for a risk/reward ratio of -4.18% to 9.84%.
- On 11Jul13, Ford declared a $0.10/share dividend payable on 03Sep13 with an ex dividend date of 31Jul13.
- New car sales in the United Kingdom have risen 13.4% year over year in June with the Ford Fiesta and Focus topping the list of best sellers. This is good news as I believe the rest of Europe will follow in the U.K.'s footsteps and jive with what I said back in early May, "I believe Europe will be looking better at the back half of this year and that's why I believe Ford will be the better play in the long term."
Granted the stock is fundamentally more expensive now than it was back in May, I truly believe that the European sales will be better in the second half of the year and can be a catalyst for the company. But before I buy any shares I want to see what it will do with the $17.08 resistance value I spoke about in the technicals section. If it goes through resistance I will be buying, if it gets rejected I will be waiting until it drops. Earnings are right around the corner on 22Jul13 and will be an important catalyst for the stock.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are accountable for what you trade and happy investing!