Is Ford Undervalued?

With shares of Ford (NYSE:F) trading around $12.93, 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 an international company that produces cars and trucks. The company and its subsidiaries also engage in other businesses, including financing vehicles. Ford operates in two sectors: Automotive and Financial Services. Its Automotive Sector includes Ford North America, Ford South America, Ford Europe and Ford Asia Pacific Africa. Financial Services includes Ford Motor Credit Company and Other Financial Services. In recent years, Ford has been busy innovating and creating vehicles that may fuel demand. Through its sectors, Ford is poised to create enhanced vehicles and offer the means necessary to acquire them to consumers across the globe.

T = Technicals on the Stock Chart are Strong

Ford stock has not made significant progress over the last few years as it has mainly traded in a range. The stock has recently bounced off of the lower end of its long-term range and looks to be headed higher. 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 is trading around key averages which signal neutral price action in the near-term.

F

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(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Ford Options

34.21%

90%

87%

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

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish 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 Mixed 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’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Ford look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-87.99%

0%

55.93%

-42.62%

Revenue Growth (Y-O-Y)

5.32%

-2.66%

-6.53%

-2.02%

Earnings Reaction

-4.64%

8.59%

-0.99%

-2.27%

Ford has seen mixed earnings and revenue figures over the last four quarters. From these figures, the markets have been mostly disappointed with Ford’s recent earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has Ford stock done relative to its peers, General Motors (NYSE:GM), Toyota Motor (NYSE:TM), Honda Motor (NYSE:HMC), and sector?

Ford

General Motors

Toyota

Honda

Sector

Year-to-Date Return

-1.35%

0.73%

19.44%

6.33%

2.20%

Ford has been a relative underperformer, year-to-date.

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Conclusion

Ford operates in an established industry that is now being revolutionized through the innovation being provided by large and small companies worldwide. The stock has bounced off of the bottom of a long-term range and may be headed towards the top end. However, earnings and revenue figures have been mixed so investors have not been too excited. Relative to its peers and sector, Ford has trailed in year-to-date performance. WAIT AND SEE what Ford does in the coming quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.