Ford: Ready To Breakout?

| About: Ford Motor (F)

Summary

Ford stock has been in a fairly narrow range for the past year.

With the stock up recently and nearing $17.40, it is encountering resistance.

Will F shares breakout and race to $20?

Introduction

Ford (NYSE:F) has been in a fairly tight trading range for the past year - the stock has been bound between $14.40 and $18.02. However, in the last 5 months the stock has seen solid gains as it is up about 20% from the February 3, 2014 low of $14.40.

F Chart

F data by YCharts

Ford shares have recently been making moves that suggest they might be able to break out of the current trend. However, the following chart shows that it is hitting resistance:

Click to enlarge

(Source: finviz.com)

Can Ford power its way through the resistance level that the stock is at? Or will it retrace and resume the pattern that it has been in since February?

If the stock does rise above its current resistance, can it continue up above $20 any time soon? Note that on Jan 13, 2011 Ford shares hit the high mark of the last 10 years at $18.97 per share.

Positive Growth in Asia

Ford's growth in the Asia Pacific region has been very strong. In addition to increasing market share, the company has increased margins substantially:

(Source: Ford 10-Q filed on May 1, 2014)

Ford May 2014 unit sales in India were up 105% from the year ago period. In June, unit sales were up 36%.

In China, May unit sales were up 32% while in June sales were up 44%.

Ford is executing well in Asia Pacific, which is the region with the most growth potential for the next decade (at least). However, keep in mind that Asia Pacific is not currently a large component of Ford's business. Units sold in the Asia Pacific region represented about 21% of the total units sold for the company in Q1 2014. However, the revenues by region are as follows:

  • Asia Pacific: 7.8% of the company total;
  • North America: 60.4% of the company total;
  • Europe: 22.9% of the company total.

New Model Uncertainty

Mr. Market does not like uncertainty and Ford is rolling out a large number of new/revamped models over the next 12 months, including a major change to the flagship vehicle of the company: an aluminum F-150. Will customers stay loyal to Ford and buy the new models?

The key word is "loyalty" - and Ford currently has that precious commodity. According to IHS Automotive, Ford ranked #1 in loyalty for the first quarter of 2014. Ford achieved a 64% loyalty mark with Mercedes and Toyota tying for second place at 57.8%. The industry average was 51%.

Conclusion

Note the volume over the last few weeks on the Finviz chart above with the trend lines. In order to have a convincing breakout from the trading pattern we've seen for most of 2014, I would have liked to see much higher volume as the stock rose from $16.50 to its current level.

Also consider the forward P/E of the stock, which is at a four year high:

F PE Ratio (Forward) Chart

F PE Ratio (Forward) data by YCharts

For the technical and fundamental reasons mentioned above, I don't think that Ford is going to break out of its range at this time. In the next 1-3 months, I predict a dip back to $16.75 and the stock may test resistance around $16.25. If I am wrong about that and the stock does break $18 per share, I am still skeptical about it hitting $20 by the end of 2014. It will bump up against the 10-year high and fundamental investors will begin to get increasingly nervous about the forward P/E.

According to Yahoo Finance, analysts are estimating EPS of $1.32 per share in 2014 (down $18.5% from 2013) and $1.91 per share in 2015 (up 44.7% from 2014). That sort of wild swing often provokes a "wait and see" attitude from investors and is another reason I don't believe the stock will take off this summer.

Going forward, I like what Ford is doing. I personally feel that the new models will go over well with consumers - that loyalty report helps give me confidence there - and the growth in Asia Pacific is looking great for the long run. Furthermore, the forward P/E looking all the way through 2015 is at about 9. However, there is a lot of time for surprises to happen between now and the end of 2015. If the shares dip as I think they will, I will be looking for an entry point. I am currently in the "wait and see" camp.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.