Ford Motor (F)

I like Ford. It's balance sheet isn't necessarily pretty, but I think it's long term prospects are good.



It trades at a P/E of 7.5, and according to Yahoo! Finance the industry standard is 25.3
It's PEG ratio is .85, which according to Yahoo! Finance is 6/64 in the auto. industry.

According to those ratios the company is relatively inexpensive. It has been beaten down ever since the beginning of the year when it reported lower than expected earnings.

This earnings miss was due to:

1. Loss from Ford’s European Operations, both from reduced sales overall and in market share, combined with increased structural and commodity costs.
2. Increased commodity costs in worldwide production and roll out.
3. Increased launch-costs of new models worldwide for the fourth-quarter.

(Data from SeekingAlpha)

At that time, analysts were expecting an operating profit of .48 per share. Operating profit came in at .30 per share. This was a huge miss, but Ford management insisted that the large discrepancy was attributable to analysts apparent underestimation of vehicle launch costs. Management said they would need to do a better job of communicating with analysts about Ford's operating costs going forward.

Ever since this miss early this year, Ford has been beaten down tremendously. At one point, from its high of 18.97 to its low of 9.05, the stock had been down more than 50%. It has since rallied to 12.52 today, down 31% from its high.

Today's option action on Ford is bullish, with the call/put volume ratio coming in at 5.04. For those of you unfamiliar with options, this means that for every one person who bets that Ford's stock will go down in the future, 5 people are betting it will go up.

Ford will announce earnings on Wednesday, Oct. 26. Earnings are expected to come in at $0.44 per share on sales of $30.4 billion. The average analyst price target is $17.42.

If you look at the chart below, you can see that Ford appears to be entering a new uptrend. Have a look at the MACD which is showing a very solid follow through, signaling momentum behind the stock. A MACD crossover like this has not been seen since late '08/early '09 when Ford was trading at below $2/share and went on to rally to incredible heights. Don't expect Ford to rally 800% like it did from 2 to 18, but I would expect a nice run in the share price here if we get good earnings on Wednesday. Look for a large spike in volume to confirm an uptrend that should continue for a while. (Of course, given that the European situation is stable).




 Have a great day! I'm headed to the library to study for midterms. Yahoo! Speaking of Yahoo!, potential bids by Microsoft and Google to aid private equity groups in the buyout are in the works. Very interesting.

Cheers,
EZ