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Surging Ford Motor Company Stock Provides Merciful Opportunity to Take Profits

Although it's tempting to view the recent F stock price rally as an opportunity, we've seen this setup before

By Josh Enomoto, InvestorPlace Contributor


Among automakers, Ford Motor Company (NYSE:F) is an especially tough nut to crack. The underlying sector as a whole is riddled with questions. While demand is largely secular, fears of peak vehicle sales have dominated news headlines. But, recently, F stock is a picture of contrasts, jumping nearly 11% over the trailing three months.

Surging Ford Motor Company Stock Provides Merciful Opportunity to Take Profits
Source: Shutterstock

On the other side of the coin, the F stock price hasn’t sustained prior rallies. Even the current rally has only succeeded in bringing shares up to parity for the year. Considering that blindly buying a basket of companies from the S&P 500 Index could likely get you double-digit returns, F just seems like an unnecessary risk.

It’s also worth keeping in mind that, over the last five years, F stock has behaved like a rollercoaster — a rollercoaster that was apparently stuck in a downward trend. This dynamic contrasts with domestic rival General Motors Company (NYSE:GM), which decisively broke free from its bearish pattern. Toyota Motor Corp (ADR) (NYSE:TM) sports a somewhat similar trend to F, but TM’s undulations are much more forgiving.

Many, if not most, people prefer investment stability, especially if they’re buying Ford for its near-5% dividend yield. Unfortunately, the F stock price is anything but stable. It is one of a handful of companies that can make you a multiple winner and loser in the same year.

Still, I can’t help but notice that the F stock price may have bottomed out. Several times, shares have tested the $10.50 support level; so far, short traders have been rebuffed.

Could this rally finally be “the one”?

F Stock Has Too Much Lost Ground to Recover

I hesitate to be the bearer of bad news. Outside of sports journalism, financial columns invite the worst internet vitriol. If I had feelings, they might get hurt.

Trolls particularly have field days with analysts posting negative opinions. Such is the life of working in the media. Nevertheless, I’m not going to paint a rosy picture if I don’t believe in it. While I applaud F stock and its speculators, now would be a good time to consider taking some profits.

For the longest time, Ford cars stunk. If you’re a lifelong Ford fan, I’m sorry, but you and I both know it’s the truth.

Now, it’s also true that the iconic automaker turned it around, but, man, did it take a long time for the turnaround to occur! In June, Ford achieved its highest J.D. Power Initial Quality Study score ever — an accomplishment 30 years in the making.

While it’s better late than never, Toyota, Nissan Motor Co Ltd (ADR) (OTCMKTS:NSANY), Honda Motor Co Ltd (ADR) (NYSE:HMC) and others forged a reputation for quality that they’re unlikely to cede cheaply. Although a legacy headwind, it still has a negative impact for F in terms of consumer perceptions.

Therefore, you shouldn’t be surprised when you find out that Ford is a relatively middling name in its home market — a market, which I’ll remind readers, may indeed be staring at peak auto.

The obvious retort is China, China, China. I agree that the Asian powerhouse is an incredible opportunity for automakers. Sales are exceptionally robust compared to other nations. However, the F stock price will eventually be impacted by global auto’s war of attrition.

China’s Auto Market a Mixed Bag for the F Stock Price

While auto sales are jumping in China, they’re not doing so well in Brazil and Russia. The latter will likely not get any relief since we’re sanctioning them to death. Also, giving any leeway to the Russians would look bad for President Trump’s administration.

Experts predict that positive growth regions will outweigh declining markets. But these experts are making a broader forecast. The real question is, how much of that pie will Ford get to eat? If Ford isn’t doing so well at home, it’s hard to envision them doing well abroad, especially in Asia.

Moreover, the Chinese auto market is somewhat binary. The rich will eschew Ford for high-end brand names like Mercedes-Benz (OTCMKTS:DDAIF), BMW (OTCMKTS:BMWYY), all the way up to Ferrari NV (NYSE:RACE). The other end of the social spectrum may not be able to afford American-made cars.

Chinese-made cars are a growing industry, and they will supply much of the demand. Adding insult to injury, some Chinese automakers have no qualms about copying Ford. It’s a communist country, and that’s just how they roll.

But for the F stock price, this is pretty ugly news. In a potentially tightening industry, Ford needs to secure as many decisive victories as possible. I don’t really see that happening, which is why I’m still questioning the current rally.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2017/11/surging-f-stock-opportunity-profits/.

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