Is Ford Motor a Healthy Investment?

With shares of Ford Motor (NYSE:F) trading around $16, 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 a producer of cars and trucks. The company also engages in other businesses, such as financing vehicles. Ford operates in two sectors: automotive and financial services. Through its sectors, Ford provides a wide range of vehicles, vehicle parts, and services to a multitude of consumers and companies worldwide. The company’s products saw declining demand in the past several years as gasoline prices took a major toll on pockets. Ford is now revolutionizing its vehicles in order to compete on the world stage. Look for Ford to fuel a recovery in the American automobile industry and provide highly demanded vehicles, parts, and services.

Ford Motor said on Thursday it is recalling 1.39 million SUVs and sedans in North America, most for the possible loss of power steering. About 1.186 million of the vehicles Ford said it is recalling are in the United States. That figure is only 2,200 shy of the total number of vehicles that Ford recalled in the United States during all of last year. Automakers are giving heightened scrutiny to safety issues in the wake of General Motors (NYSE:GM) ongoing safety crisis that began with an ignition-switch issue in older-model cars. So far this year, GM has recalled 15.8 million vehicles worldwide. Analyst Karl Brauer of Kelley Blue Book said Ford’s spate of recalls on Thursday may be “driven by the heightened sense of concern all automakers are feeling right now, though we’ll likely never know for sure.” Brauer added that there have been so many recalls since February when GM issued its first ignition-switch recall that the actions have become “sort of background white noise for consumers.”

Ford said it will recall 195,527 Explorer SUVs in North America from the 2011 to 2013 model years and 915,216 Ford Escape and Mercury Mariner SUVs from model years 2008 to 2011 on power steering issues. In addition, it will recall nearly 200,000 Taurus sedans in North America from the 2010 to 2014 model years on a corrosion issue. Finally, Ford is also recalling 82,576 sedans with floor mats that may interfere with the operation of accelerator pedals. The floor mats were put in 2006 to 2011 model year Ford Fusion and Mercury Milan and Lincoln Zephyr and MKZ sedans.

T = Technicals on the Stock Chart Are Strong

Ford Motor stock has been moving higher over the past couple of quarters. The stock is currently trading near all time highs and looks poised to continue. 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 Motor is trading above its rising key averages which signal neutral to bullish price action in the near-term.

F

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Ford Motor options

20.00%

23%

20%

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

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

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

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

86.40%

85%

-69%

15.38%

Revenue Growth (Y-O-Y)

3.67%

3.58%

11.84%

14.71%

Earnings Reaction

-3.3%

0%

1.37%

2.53%

Ford Motor has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Ford Motor’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

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

Ford Motor

General Motors

Toyota Motor

Tesla Motors

Sector

Year-to-Date Return

6.51%

-15.50%

-7.22%

40.40%

7.04%

Ford Motor has been a relative performance leader, year-to-date.

Conclusion

Ford is a well-established vehicle products and services producer distributed in a multitude of countries across the globe. The company said on Thursday it is recalling 1.39 million SUVs and sedans in North America. The stock has been moving higher over the past couple of quarters and is currently trading near all time highs. Over the past four quarters, earnings and revenues have been rising. However, investors have had conflicting feelings about recent earnings announcements. Relative to its peers and sector, Ford has been a relative year-to-date performance leader. Look for Ford to OUTPERFORM.

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