Has Ford Become a Trading Stock?

Ford’s (F) stock has been stuck in neutral for over two years now. The Blue Oval has failed to break past the $18 mark and the stock has traded in the range of $13-$18 for the last two years. Despite Ford’s terrific management and great execution, the company has been plagued with bad luck as many unforeseen circumstances have kept a lid on Ford’s stock. However, with Ford trading near the bottom end of the range band, I think investors can initiate a long position in the stock from trading as well as long-term investment.

I still believe Ford’s stock is undervalued and the company’s growing earnings along with high dividends and cheap valuation makes it a buy for long-term investors.
However, given the company’s range-bound nature and the fact that it is trading near the lower-end of the range band, it is also a good stock for traders.

I believe in long-term investing. So, in this article, I would like to pen down my thoughts about the long-term prospects of Ford.

The company recently missed on earnings estimates and as a result, the stock lost almost 8% of its value in the last few weeks. However, the earnings miss wasn’t as bad as Mr. Market made it look. Despite the miss, Ford’s earnings jumped over 90% y-o-y.

In addition, I expect Ford to sustain its earnings growth going forward due to the higher ASP of its new aluminum-bodied F-150 pickup. Due to the aluminum body of the 2015 version of the F-150, Ford had to retool its production plants. The retooling took more time than estimated, and as a result, the company lost market share to General Motors (GM).

However, with the production now catching up with the supply, Ford investors can expect strong earnings growth. The average transaction price for Ford’s vehicles during the month of November was up 2.7% y-o-y to $36,533, thanks to the higher ASP of the F-150.

Due to the higher fuel efficiency and towing capacity, Ford is able to charge a premium for the pickup and with supply finally increasing, I expect the company to witness considerable earnings growth going forward, making it a good pick in the long-run.

Conclusion

As of now, I am very bullish on Ford. I think the stock possesses about 15%-20% upside potential. In addition, although I am not a trader, I think the stock can be brought for a short period of time as well. But the company’s long-term prospects look good. Investors can enjoy a nice dividend yield while waiting for the stock to breakout, making it a buy.
Published on Dec 2, 2015
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

Posted in ...