By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 1/17/10 Sign up for free Cabot Wealth Advisory e-newsletter
How can investors take advantage of the improved outlook for car and truck sales? There are three companies in the automotive sector that I really like: Ford is a U.S. manufacturer of cars and trucks. Magna International is a Canadian maker of automotive components and vehicle systems. Tata Motors is India's leading automotive manufacturer.
Ford Motor (F) produces cars and trucks. The company and its subsidiaries also engage in other businesses, including manufacturing automotive components and systems. It also finances and rents vehicles and equipment. Ford lost more than $7.1 billion in 2008, but has recovered remarkably without borrowing from the U.S. government.
Ford has a very heavy debt load of $117 billion, although the company also holds a high cash balance of $40 billion. The company will likely earn $1.90 per share in 2010 and $2.05 in 2011 while sales rise substantially. With the leveraged balance sheet, EPS could increase more than forecast, too. The company is cutting back the number of models that it makes, which will save manufacturing costs. New model changes and the company’s international consolidation endeavors bode well for increased market share and cost efficiency. Ford does not pay a dividend now, but probably will reinstate a small dividend within the next couple of years.
J. Royden Ward
Editor of Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.
By Elyse Andrews, Editor of Cabot Wealth Advisory
From Cabot Wealth Advisory 5/1/10 Sign up for free Cabot Wealth Advisory e-newsletter
Ford Motor (F), which did not take a U.S. government bailout and has perhaps been the most solid U.S. carmaker in recent years, had some news this week when it released first quarter fiscal results.
The company earned $2.1 billion in the first quarter and said it expects to be solidly profitable this year. Ford reported a net income per share of 50 cents, its highest quarterly profit in six years. Revenues rose 15% to $28.1 billion.
And the company is making money around the world, from its North American market to Asia, South America and Europe. Ford saw an 84% surge in sales in China, while its U.S. sales jumped 37%. The company made $1.2 billion in North America, which had been hemorrhaging money in recent years.
This is what Mike wrote about Ford when he recommended it in March in Cabot Market Letter:
"Ford Motor is a powerful turnaround story, as sales of its cars and trucks are ramping up in a big way--U.S. sales rose a whopping 43% in February from the prior year, including a big 28% jump in retail sales. It's gaining market share from GM and, recently, from Toyota, whose troubles are well documented. And earnings are already beginning to go through the roof; the firm has been solidly profitable the past two quarters and could earn more than $1 per share in 2010. While we can't say F is in the first inning of its advance, we're impressed with the stock's long 18-week base during the second half of last year, its powerful advance into January, and then its tight seven-week zone during the market's correction. F has recently broken above resistance at 12, resuming its major advance."
But the market's weakness and Ford's solid, but less-than-blockbuster earnings report seem to have put the brakes on the stock for now.
Mike wrote a Cabot Wealth Advisory earlier this week about earnings season perceptions and reactions that's an absolute classic. One part is particularly relevant to the Ford news, so I'll reprint it here:
"It's earnings season, and that means every day there are stocks gapping up or down following their quarterly reports and conference calls. Most days, at least one of our recommendations in one of our various newsletters is gapping up or down from the opening bell.
"In almost every case, the company we're following will have met or exceeded the official analysts' estimates for sales and earnings. And the forecast is usually pretty good, too. Yet despite this "good" news, the stock can often tumble a few percent, and in a few cases, fall much more, breaking through key support.
"Whenever this occurs, I am usually inundated with emails asking "Why is the stock down when the numbers were so good!" My usual answer is simply, "Expectations were higher than what the company delivered." But I should probably also say, "It doesn't really matter WHY the stock is down; the fact that it's down is all you need to know."
"Said another way, it's not the news, it's the REACTION to the news that counts. That goes for earnings reports, but also to any headline news in the stock market. News is only "good" if it results in upward price movement."
So while Ford's earnings report was solid, it may not have been enough to keep the stock in its upward advance. Mike put the stock on hold this week and he's watching the 13 area closely for signs of support.
Editor's Note: Ford has been featured in both Cabot Top Ten Report (where subscribers currently have more than a 40% gain) and Cabot Market Letter, both edited by Michael Cintolo.
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A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.
By Michael Cintolo, Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly
From Cabot Wealth Advisory, 3/18/10. Sign up for free Cabot Wealth Advisory e-newsletter
Ford Motor (F) is a turnaround story with legs. Analysts estimate 2010 earnings could come in around $1 per share, though we think there's a good chance those numbers are conservative, especially given the firm's debt-rating upgrade this week, which could slash interest costs over time. The stock has rallied from 11.5 to 14.2 during the past three weeks, and this is likely to be the stock's eighth straight weekly advance, a sign of persistent demand. A retreat into the mid-13s would be tempting.
Editor's Note: Ford is a Cabot Top Ten Report stock, hand-selected by Editor Mike Cintolo with the aid of OptiMo, our proprietary momentum stock-picking system. To get more of Mike's top picks, along with both the technical and fundamental reasons why he likes these stocks now, try Cabot Top Ten Report today. Click here for more information.
By Michael Cintolo, Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly
From Cabot Wealth Advisory, 2/18/10. Sign up for free Cabot Wealth Advisory e-newsletter
Today, I want to remind you of my favorite turnaround stock—Ford Motor (F). Obviously, most investors are aware of the company's recent past, and of its dramatic turnaround during the past year. But I think there's a good chance more upside is on the way.
Why? First, in a company like Ford Motor, the earnings leverage is huge because fixed costs (though they've been chipped away during the past couple of years) are still huge. When business falls, that results in steep losses, but when sales are rebounding, as they are today, earnings can shoot through the roof. The last two quarters saw Ford earn 26 and 43 cents per share, crushing estimates, and analysts now see 90 cents per share in 2010 ... a number that is likely very conservative.
Second, the stock itself, while having a massive run from its bear market lows (like everything else), doesn't appear overly stretched within its overall upmove. In fact, F built a 10-week base between 5 and 6.5 during last summer, then soared all the way to 9. But then the stock built another base-this one 18 weeks long-between 6.6 and 9. The breakout from that zone occurred in December. My point is that the stock had lots of back-and-forth action in the second half of last year, wearing out weak hands and setting the stage for a sustained advance.
Finally, F has held up very well during the market's correction, falling a maximum of 14% and really just moving straight sideways on its chart. I also like last week's tight trading range, a sign that no more selling is coming into the stock.
The way I would play it is this: If the major indexes rally back above their 50-day lines, and F breaks above 12 on heavy volume, you can buy some. And if it keeps advancing, buy a little more. My guess is that the stock has at least another spurt higher in the weeks or months ahead as business improves.
Editor's Note: Michael Cintolo is the editor of Cabot Top Ten Report, which has featured Ford as a market leading stock. Each week, Mike combines our proprietary Optimum Momentum stock-screening tool with his expert growth stock advice to select the top 10 stocks in the market. Look at some of these 2009 one-month, double-digit gainers: Baidu (BIDU) UP 26%, Freeport-McMoRan (FCX) UP 36%, Par Pharmaceutical (PRX) UP 24% and Vistaprint (VPRT) UP 23%, among many others. Click here to get started with Mike's advice today!