Autos

Is Ford Motor a Buy?

With shares of Ford Motor (NYSE:F) trading around $16, is F an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Ford is a producer of cars and trucks. The company also engages in other businesses, such as financing vehicles. Ford operates in two sectors: automotive and financial services. Through its sectors, Ford provides a wide range of vehicles, vehicle parts, and services to a multitude of consumers and companies worldwide. The company’s products saw declining demand in the past several years as gasoline prices took a major toll on pockets. Ford is now revolutionizing its vehicles in order to compete on the world stage. Look for Ford to fuel a recovery in the American automobile industry and provide highly demanded vehicles, parts, and services.

Ford’s decision to overhaul its Fusion sedan may have been one of its best decisions in the past few years. Not only are buyers snapping up the new car in great numbers, but its bold styling, Aston Martin-esque cosmetic demeanor, and variety of drivetrains have sent its competitors back to the drawing board in efforts to remain competitive. Bloomberg is reporting that Ford moved a record number of Fusion sedans, since increased competition from the likes of the Honda (NYSE:HMC) Accord and Toyota (NYSE:TM) Camry has spurred the company to increase its incentives on the car by 32 percent.

Ford reportedly beat its record of 30,284 Fusions sold in the same month of last year, according to Erich Merkle, Ford’s sales analyst, who spoke with Bloomberg. It’s just the second time Ford has sold more than 30,000 Fusions in one month since the original generation was introduced in October 2005. “There’s a tremendous amount of competition in this segment,” Merkle told the news service. “This is really hand-to-hand combat. There’s no other way to describe it. This is bloody, it’s in the trenches.”

T = Technicals on the Stock Chart Are Mixed

Ford Motor stock has struggled to make significant progress in recent times. However, the stock is currently surging higher and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Ford Motor is trading between its rising key averages, which signals neutral price action in the near-term.

F

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Ford Motor options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Ford Motor options

22.84%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

April Options

Average

Average

May Options

Average

Average

As of Tuesday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Ford Motor’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Ford Motor look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

85%

-69%

15.38%

14.29%

Revenue Growth (Y-O-Y)

3.58%

11.84%

14.71%

10.37%

Earnings Reaction

0%

1.37%

2.53%

-0.22%

Ford Motor has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Ford Motor’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Ford Motor stock done relative to its peers – General Motors (NYSE:GM), Toyota Motor (NYSE:TM), and Tesla Motors (NASDAQ:TSLA) — and sector?

Ford Motor

General Motors

Toyota Motor

Tesla Motors

Sector

Year-to-Date Return

5.15%

-15.10%

-7.26%

43.62%

-4.73%

Ford Motor has been a relative performance leader, year-to-date.

Conclusion

Ford Motor is a well-established vehicle products and services producer distributed in a multitude of countries across the globe. The company’s decision to overhaul its Fusion sedan may have been one of its best decisions in the past few years. The stock has struggled to make significant progress but is currently surging higher. Over the past four quarters, earnings and revenues have been rising, which has left investors pleased. Relative to its peers and sector, Ford has been a relative year-to-date performance leader. Look for Ford Motor to OUTPERFORM.

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