Ford (NYSE: F) is one of the most recognizable auto stocks in the world. And as its “Built Ford tough” motto suggests, the company has been a pillar of strength in the automaker industry for over a century — even while Detroit counterpart General Motors (NYSE: GM) went bankrupt and Toyota (NYSE: TM) was racked by recalls.
The company’s stock has certainly seen its shares of ups and downs since it first began trading on Jan. 17, 1956, and that’s been especially true since the onset of the Great Recession.
During the past several months, however, there have been more downs than ups. The stock has fallen nearly 13% over the last three months, and that recent trend is a clear departure from the spectacular upside we’ve seen in F shares over the past two years. Ford stock is up an incredible 680% over the past 24 months, and over the past five years the stock is up more than 90%. Now the question is which direction will the stock turn?
Here are the pros and cons of the automaker’s shares.
Ford Stock Pros
Improved industry sales. This week we got news that the auto industry at large saw a big jump in U.S. sales. Total sales rose 27% to their highest level since the August 2009. That August 2009 number reflects the artificial increase from the government’s “cash for clunkers” program. So, if we back out that unusual monthly sales bump, we see that the February 2011 sales figure of 13.44 million units sold last month (at a seasonally adjusted annual rate) was the best month for car sales since August 2008. Truck sales also were strong in February, with a 31.7% increase over last year.
Rising fuel prices. You might not immediately think of rising fuel prices as a positive for an auto company’s shares, but in Ford’s case they just might be. That’s because Ford has perhaps the best lineup of fuel efficient vehicles of any major automaker, and a continued spike in oil prices may actually be a boom for Ford sales. In fact, the company has already seen a boost in its fuel-efficient models, and that increase came with a 14% rise in overall year-over-year sales in February.
Chance to buy the dip. Ford shares spiked to multi-year highs in January, but since then the stock has come well off its lows. As of today’s trade the stock is down about 23% from its 52-week high. That means bullish Ford investors are getting a big discount in the stock right now, and a great opportunity to “buy the dip.”
Ford Stock Cons
Sliding market share. Although Ford’s February sales were solid, they were well behind in both volume and momentum to competitors General Motors (NYSE: GM) and Toyota Motor Corp. (NYSE: TM). GM’s February U.S. sales data showed the formerly bankrupt entity grew its U.S. market share by 2.7 points to 20.8%. Toyota’s U.S. market share rose 1.5 points to 14.3% in February. In contrast, Ford’s U.S. market share actually slid 1.9 points to 15.7%
Rising fuel prices. So, how can rising fuel prices be a both a pro and a con for Ford? Well, if oil prices continue trading around $100 a barrel that would likely force gas prices beyond $4 a gallon and push buyers toward Ford’s more fuel efficient models. However, if oil prices were to continue spiking from here, and if they were to rise to say $120 a barrel and stay there for a while, that will most certainly keep buyers away from big purchases. Of course, if oil prices surge that high, the entire U.S. economy will be put in jeopardy.
Big earnings miss. Perhaps the biggest con facing Ford shares is its recent earnings miss. Late January, the company reported fourth quarter earnings that came in well below expectations. Ford’s earnings per share of just 30 cents (excluding items) was a drastic underachievement, and far below the 48 cents per share the Street was expecting. Although Ford’s quarterly revenue of $32.5 billion was better than expectations for revenue of $30.39 billion, the company’s shares paid the price for the EPS miss.
Verdict on Ford Stock
I’m not too worried about the fact that Ford posted lower percentage sales gains than either GM or Toyota, and I do not think this indicates a fundamental weakness in the stock. However, I am concerned about the company’s inability to make more money on such strong revenue. Though this is a very tough call, I think the verdict here should be in favor of the pros. If you’re an investor looking for a quality company you can get at a discount to its recent highs, then Ford is a really attractive candidate.
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As of this writing, Jim Woods did not own a position in any of the stocks named here.
