Anyone that has skimmed my work over the years knows that I am not a big fan of the automakers. In particular, Ford (NYSE:F) has really struggled, preventing it from being a stock I had much interest in. Now though, F stock has been looking better on the long side.
I don’t know if that exactly makes it a buy, but it’s at least worth taking it more seriously. The automaker is shaking up its leadership, introducing new vehicles and has an improving technical setup on the charts.
While shares were obliterated amid the novel coronavirus selloff, we’re starting to see demand come back.
Coronavirus Dealt a Tough Blow to F Stock
When Covid-19 erupted onto the scene, it hurt many pockets of the economy. However, automakers were uniquely positioned for terrible pain. Stocks like Ford, General Motors (NYSE:GM) and Fiat Chrysler (NYSE:FCAU) suddenly faced a situation of 100mph to 0 mph.
Saddled with fixed costs and dependent on a strong consumer, Ford and its peer had to rapidly shut down production and hope that the economy didn’t suffer too deep of a recession.
Who is buying a new car during a pandemic and at the onset of a recession? Luckily the Federal Reserve moved quickly — like, blazingly fast — and was able to inject trillions into the system to keep liquidity moving.
This prevented a worst-case scenario from unfolding, which is a real blessing for companies like Ford. That’s not to say it didn’t suffer a setback, but as we’re already seeing, business is on the mend.
Last quarter — so at the height of the coronavirus impact — Ford saw revenue fall “just” 53.5% year-over-year to $16.6 billion. That was almost $1 billion ahead of estimates. A loss of 35 cents per share easily beat estimates by 81 cents per share.
In all, the quarter wasn’t good, but it was better than what Wall Street was expecting. Now, the company is starting to dig its way out of this tough hole and it’s looking okay as it does it.
Breaking Down Ford Stock
Early on in the pandemic, Ford slashed its dividend and drew down on its credit lines. This reduced cash outflow and bolstered the automaker’s liquidity during a time of high uncertainty.
We still don’t know what the end game is with the coronavirus. Will there be a huge second wave during the cold and flu season? Will Covid-19 dissipate over time or will it linger? Will the death rate go down to the point where it’s like another flu strain?
There are countless unknowns, and at the end of the day, that uncertainty makes the business landscape more difficult. For Ford’s management team, navigating this new economic environment will force it to be more efficient moving forward.
At least, that will be one of the tasks for Jim Farley, the current COO who will replace current CEO Jim Hackett on October 1st.
Soon after the introduction, some of Ford’s more exciting new vehicles will begin to hit dealerships. That includes the new Bronco and the Mustang Mach-E. While both vehicles look similar to some of the competition — the Bronco leaning on the Jeep Wrangler for some inspiration, while Tesla (NASDAQ:TSLA) being clear inspiration for the Mach-E — these models both present growth opportunities for Ford.
Trading F Stock
Analysts predict 2021 sales of $139.26 billion. That would still present a decline from the $143.6 billion in revenue the company generated in 2019. However, at a low stock price, investors may find the risk/reward worthwhile.
At least while F stock is trading well.
A look at the daily chart shows a series of higher lows for Ford over the past few months. While buyers may not want to buy at $7 when F stock was at $4 in March, they at least have momentum on their side now.
Shares are struggling with a supply zone near $7.25, while also grappling with the 200-day moving average. A dip down into the 50-day moving average and uptrend support (blue line) may be an attractive buying opportunity. Below that though and $5.75 could be in play.
A rotation up through $7.25 puts the June high in play at $7.74, followed by the 78.6% retracement at $8.11. Above that and F stock may try to fill that monstrous February gap between $8.50 and $9.10.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
