By Thomas Hughes
Ford Motor Company (F) is one of Americas oldest and best loved brands. The familiar blue oval is dear in the hearts and minds of millions of Americans. An iconic American brand, it is known as one of the pillars of the American industrial age and now it is making strides to lead the U.S. recovery.
Ford is well known for models such as the Mustang, Ranger, Taurus and Motor Trend's 2012 truck of the year, the F-150. It is also having success with newer brands like the Focus, which is gaining popularity among the under 25 sector. Along with the rest of Detroit's big 3, General Motors (GM) and The Chrysler Group, Ford has been making strides and improving market share over its internationally based competitors. Year-to-date, the US-made automotive sector is up over 2% and claims 47% of the total US market. Nissan Motor Company (OTCPK:NSANF) and Toyota (TM) barely make 19% of the US market together, claiming 8.2% and 12.7%, respectively. Ford currently has four cars and trucks in the top 20 consumer buys.
Ford is poised to be a market leader on many levels. More and more investors are being attracted to the domestic markets while fears from Europe and China escalate. Manufacturing worldwide is slowing and the driving force in world consumption, the US, is turning back to “American made,” a trend embodied by Ford. Numbers such as Fords 9% increase in sales year-to-date and its new place as Americas Number 2 car maker - surpassing Toyota - underscore this trend. Furthermore, Fords restructuring without bankruptcy or federal bailout money give investors added confidence.
Ford has also had a string of positive news announcements that will surely help to buoy the stock into the future. As I mentioned earlier, US market share is increasing, with sales of its F-series up more than 4% this year. Ford has maintained a reputation for building tough trucks, as evidenced by this latest awarding of the coveted “Truck of the Year.”
Ford also recently announced commencement of dividends, a shareholder perk suspended 5 years ago as part of its restructuring plan. This move will undoubtedly bring investors back into the Ford family. Ford announced a quarterly payout of $0.05/share, a move that will cost the company close to $750 million annually.
Fundamentally, Ford is also looking strong. Ford is expected to earn around $135 billion this year and is trading around 6.5x earnings. Ford's P/E ratio is on the rise following a vigorous restructuring program, which fueled management's decision to reinstate the dividend. The current dividend yield ratio is just shy of 0.20%.
Technically Ford is poised for a strong move upward. It is currently trading around $11 on average volume, and is consolidating just above long-term resistance. The current level was broken through in early 2010 and then retested once in June 2010 and then again more recently.
An upward movement from this level to resistance could be as much as $8 or 80% of current prices. Ford is trading about 10% below its 200-day moving average, which is flattening. Volatility is down over the last three months with implied and historical volatility trending near each other. With options fairly valued many investors will see them as an attractive way to gain exposure to Ford and limit risk.
In the short term, fears stemming from the impending recession in Europe and negative news out of the automotive sector will keep investors wary. Dips should be considered a buying opportunity, as Ford will surely emerge as a market leader in the US domestic recovery. In the automotive sector GM has also been in the news with a plant closing and troubles with its Volt battery packs. Volt is GM's hybrid vehicle.
Things to watch out for include further bad news from Europe, declining sales figures market wide and a possible “head and shoulders” reversal in Ford itself. Long term Ford is poised on a previous resistance/support level I mentioned above. A break down below this level, especially on high volume, could bring Ford back to the lows experienced in 2009.
It is certain that Ford's bull movement will be tempered by market sentiment. It is uncertain what news the future holds for the EU, China and the world economy. This should not halt investors from entering into trades of Ford. For those whose accounts can stomach options trading an ITM call with tight stops is a perfect way to gain exposure and limit risk. Likewise, selling an ATM covered call is another great way to limit risk and buy Ford at a discount. Otherwise look to buy half now, with tight stops, and half when Ford moves above its 200-day moving average.