Ford (F +1.8%) trades higher after making its celebrated return to investment grade with a boost...

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Night train Comments (21)
 
Didn't realize that Ford had bet the house. Wow
23 May 2012, 01:30 PM Reply Like

tigers1 Comments (9)
 
So does this mean any big changes are coming in the stock price or will it just bounce back and forth....
23 May 2012, 06:40 PM Reply Like

riverat Comments (6)
 
My take is the see-saw will continue but by years end Ford will be somewhere north of 16$. I do own F....
23 May 2012, 08:33 PM Reply Like

Tdot Comments (1620)
 
In theory it means that Ford Motor and Ford Credit can try to refinance current debt and other financed borrowings and obligations at lower finance rates, and more banks would be interested in competing for Ford's business, which should drive down costs. Refinancing could lead to lower annual finance expenses, and thus to higher profits.

So if for example Ford Credit can refinance their $85B in automotive finance business borrowings at lower rates, then the profits on Ford Credit's operating and inventory loans to dealerships, and retail loans to consumers, could significantly increase. Furthermore Ford Credit could offer more favorable terms on new consumer loans, to compete better with other finance operations, and perhaps gain a competitive advantage in attracting new sales for Ford Motor.

But, as seen over the last year or two, higher profits at Ford's do not necessarily mean higher share prices. That is driven strictly by supply and demand of the ~4B shares on the open market. And the market is very fickle right now.

But there is more. Many conservative investment firms and funds are strictly forbidden to invest in "junk" bonds and less-than investment grade businesses. Now that Ford has achieved investment grade with two of the three houses (Fitch and Moody's) as a minimum, and S&P could join in at any time, suddenly the big institutional investors are free to buy up Ford shares and bonds. If there is sufficient net demand for Ford shares, then the price should rise proportionately on the open market.

That said, there are still vast numbers of short term investors who would instantly sell out to cash in on the profits, or to cut losses, if the price hits some target, so there is a lot of weight on Ford shares at the moment, which would tend to beat down any sudden rises.

If global economic tensions stabilize (and that is the major noise factor driving Ford shares right now), then you should expect to see Ford trending upward at a pace inline with profits, net cash, and cash flow - say a buck a quarter. If it races far ahead of a reasonably steady growth pace, then a collapse could be imminent as, again, profit-takers cash out.
24 May 2012, 07:24 AM Reply Like