Ford CEO Alan Mulally remarked yesterday in a Bloomberg TV interview about his concern regarding the recent depreciation of the Japanese Yen. I’ve been watching Ford’s stock, considering a long entry for some time, but the Yen’s price action has concerned me as well. Here’s the 1 year chart of F:
The stock had a very powerful uptrend from September to January, and has since stagnated. Part of the reason I’ve liked Ford is that it’s a much cheaper way to play the U.S. housing theme than the homebuilders. From my Nov. 6th trade idea:
Ford is a name that benefits from the housing theme indirectly, but is priced much more cheaply, with a better technical setup to boot. Here are 3 reasons why I like Ford as a long here:
- Valuation. Ford is a 8 P/E name with projected earnings growth averaging 10-15% over the next 2 years.
- Housing Turnaround. Ford is a much cheaper, low-risk way to play the improved housing outlook in the U.S. Homebuilders and building materials stocks have priced in the turnaround and then some, while Ford is a huge beneficiary to the story, but it’s not priced in. More than 60% of its revenues come from the Americas.
- Current dividend yield and potential yield. Ford actually pays a 2% dividend at the moment, and some analysts project that it could increase the dividend next year. Contrast with GM, which offers no yield.
Since then, the stock’s valuation has become a bit more expensive, but more importantly, the earnings outlook has become murkier, with continued weakness in Europe, and increased competition from Japanese carmakers. In short, neither the fundamental nor technical setup looks exciting in Ford here.
Finally, Mulally mentioned the importance of China to future growth. From the Bloomberg article:
Asia will probably generate about 40 percent of Ford’s sales by the end of the decade, with the Americas and Europe accounting for the rest, Mulally told reporters.
Chinese growth is crucial for large multinationals going forward, not just for the materials sector that we’ve highlighted before. FDX was another warning sign on that front last week. It’s a theme we are following for the rest of 2013.