Analysts were quick in their criticism of Ford Motor Company's (F, Financial) recent announcement of an average FY 2014 result as well as the slow stock movement. But Ford has hit back at the critics with its January sales report. Ford has reported a 15.3% rise in its unit sales in January. Retail passenger car, utility vehicle and truck sales rose by 17%, 8.3% and 20% respectively. The news saw the company share stock trade at 1.4% higher.
Stock Talk
Ford is considered among one of the best large cap value investment. Ford’s stock value has risen 690% since February 2009. For the past two years, Ford has been trading in the price band of $13 to $17. An enhanced economic outlook for the domestic market fuelled by low oil prices will convert in more sales and more profits hinting at an upward swing in the stock price. The stock is likely to reach $20 mark, or may even surpass that, supported by strong domestic demand and international shipment of the new launches.
Strong fundamentals to support a stock buy:
- The most evident and the umbrella reason for a good prospect for the stock this year is the improving US economy
- Oil prices are $2 per gallon and expected to be either flat or lower. This is a great news for potential Ford truck and SUV buyers
- Ford launched many new models in 2014. All these new launches are at the beginning of their product life cycle, which means it is milking time for the company until they reach maturity levels
- The Ford F-150 truck and Mustang introduced by the company in the same year are a huge hit and the company is set to make big bucks in 2015 from their popularity. While Ford F-150 is retained in the dealer lot barely for 8 to 10 days, the Ford Mustang sales have grown by 124% and the company is yet to start European delivery of the model indicating even higher units sale in later part of the year
- The Lincoln brand expansion in China has been successful
- The share price has remained in a flat to low zone, which brings the spotlight to sizeable dividend value. The current dividend yield is 4.08%. This is a positive news for investors looking for steady and rising income over a period of time
Roadblocks
Ford has been struggling with low valuation and has been at the receiving end of criticism for quite a while now. Although the market is showing clear signs of recovery, Ford needs to be watchful and thoughtful of some crucial elements of the domestic market auto trends. There is a shift in consumers' mindset as the purchases are now increasingly being driven by economic considerations.
Besides safety, fuel is a very important element influencing purchase decisions. Ford needs to continue focusing on sustainable technology. The market is getting crowded and Ford is facing stiff competition not only from its conventional rival General Motors Company (GM, Financial), but also from foreign players like Toyota Motor Corporation (TM, Financial), Honda Motor Company (HMC, Financial), Nissan Motor Company Ltd. (NSANY, Financial) and a few others. Brand loyalties are shifting and it is changing the dynamics of the US auto market. It is forecasted that the US auto market will witness a few years of growth upswing and it may then stagnate or go in the negative zone for some period after that. Ford should cash-in the good times and strategize policies to shield the stock from a steep downtrend in the future.
Our Take
Ford is considered a safe stock due to the limited price fluctuation. The dividend yield is attractive for many investors and analysts alike. The stock price is expected to increase in the next 6 to 8 months and peak at $20 or above. The current price band of $14 to 16 makes it a good entry point for investors looking to invest in the stock. It is advisable for current investors to hold on to the stock until appreciation levels are reached.
