On Tuesday, auto giant Ford (NYSE:F) told the world that it had crossed the finish line with record North American profits in 2012. The No. 2 U.S. automaker posted a record pretax profit of $8.3 billion in its home continent for the year. Unfortunately, the company’s fiscal performance in Europe was way off track, with a loss of $1.75 billion for the year.
The numbers came along with Q4 adjusted earnings of 31 cents a share, compared to 20 cents a share in the same quarter a year ago. On the revenue front, Ford also drove higher, posting a top-line of $36.5 billion versus the $34.6 billion a year ago. The EPS and revenue metrics handily beat estimates of 25 cents per share and revenue of $33.5 billion.
Still, that wasn’t good enough for Wall Street, as traders punished F shares with a near-5% sell-off in Tuesday trading. The reason for the selling was Ford’s forecast for a loss of $2 billion in Europe in 2013. The downbeat Euro outlook is something that surprised traders, and that’s because this is the area that everyone was hoping would improve for Ford this year.
Now, I can understand the negative reaction in F shares by traders as a result of the lackluster European forecast. After all, Ford has embarked on a turnaround process in the region that many thought would bear fruit in 2013. I also understand the sell-the-news reaction in the stock, especially given the approximate 27% run in the shares over the three months prior to Tuesday.
Yet, I think that today’s slide in F represents a good buying opportunity for the shares. Yes, Europe was disappointing, but North American sales were red hot, and that will likely continue fueling Ford’s bottom line next quarter. Moreover, I think that most traders in the know will forgive Ford’s struggles in Europe, as its troubles there have more to do with the European economy than they do Ford’s failure to appeal to Old World auto buyers.
I suspect that today’s sale was more reactionary than anything else, and as such this reaction represents an opportunity to get in on F shares at a much lower price than they will trade at in three months, when Ford reports its Q1, 2013 numbers.
I think smart traders can get into the shares here for a potential 10%-plus gain by early April. Of course, to protect your downside if this trade doesn’t develop like I suspect, you’ll want to be sure and set a stop loss about 7%-8% below your buy price.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.