Ford Goes Light But Invests Heavy In Asia

| About: Ford Motor (F)

Summary

General Motors is generating most of the press, but Ford is making headlines for all the right reasons.

Ford's sales in China reach new highs.

Valuations remain extremely attractive, but will it be enough to get the Company over the hump?

General Motors (NYSE:GM) has stolen most of the headlines over the past few months with all the recalls, firings and testimony in front of Congress. However, despite this negative news, the automaker still delivered its best May since 2007. Ford (NYSE:F), on the other hand, is trying to change the industry again with the release of its lighter weight Fusion and F-150 concepts. CEO Alan Mulally is retiring on July 1, and the post-Mulally Ford (with Mark Fields at the helm) seems to have sunk in with investors as the stock has rebounded and is up almost 10% year to date. For contrast, GM is down almost 12% over the same time period including the appreciation of more than $3.00 since May 20.

Ford Motor Company and its Chinese joint ventures sold 93,323 vehicles in China in May, up 32% year-over-year, which follows a 29% year-over-year growth in April and a 28% increase in March. Through the first five months of the year, Ford has sold 461,473 vehicles, up 39% from the same period a year earlier. Ford is laying the foundation for continued strength in China and the rest of Asia with three new plants opening in China. Additionally, the Lincoln luxury brand is slated to be released in China later this year. Hopefully, the brand will perform better in Asia than it has been in the United States recently.

Ford is solidly profitable in the United States, is one of the fastest growing automakers in China, and according to Mr. Mulally is going to be profitable in Europe, and South America is "turning itself around." Since the beginning of 2012, the dividend has increased 160% from $0.05 per share to $0.13 per share for a yield of 3.00%, and the stock has appreciated more than 66%. However, despite all this the stock still trades with extremely attractive valuations. The P/E ratio (TTM) is 10.4 compared to a 14.0 for the industry, with the largest discrepancy coming in the price to free cash flow ratio - 15.90 versus 41.13 for Ford and the industry respectively.

Looking at the valuations it would make complete sense to go out and purchase shares of Ford right now. However, taking a look at the whole picture may lead to a different outcome. We now know the valuations are extremely attractive but what about the chart; what about the technicals? This is the part that is worrisome for me. The stock is approaching significant resistance that it has not been able to break through. The stock tested the $18 range back at the end of 2013 and failed to bust through. The stock tested the $20 range back in 2011 but it has taken more than three years to approach that level again. I haven't said anything groundbreaking but the question becomes is Ford worth the investment today? I love Ford. I have been invested personally in Ford since it was a $2 stock. It has a solid yield and has been a capital appreciation machine. However, I do not see anything to take it over the ledge right now, to help it break through that resistance from back in 2011. I am still holding onto the stock but would wait for a little pullback (around the $16.00 range) before purchasing additional shares.

I do see the stock breaking through and getting back to the $20-$22 range, with $30 being possible due to current valuations and expected growth if everything goes absolutely perfectly. However, when has anything gone perfectly and exactly according to plan? As a result, I'm still holding onto my shares, and would recommend taking a serious look at $16.00. If the stock falls through support at $16.00, I would be an aggressive buyer on that weakness.

Disclosure: The author is long F. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.