Can Ford Break Higher?

With shares of Ford (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.

If you remember, Ford ended up stuck between a rock and a hard place — aka the Environmental Protection Agency and its customers – when it was revealed that a formulaic error had seriously high-balled the expected fuel economy averages for the C-Max minivan-crossover vehicle. Originally rated for 47 miles per gallon across the board, an outcry from owners who were having trouble breaking 43 or so made Ford examine the issue to find that they were right, and the official numbers were lowered to more accurately reflect the car’s true fuel economy. The car is now rated for 45 in the city and 40 miles per gallon on the highway. Despite doing the right thing, it appears that the cut to EPA ratings has hurt the sales of the C-Max. The rating was initially tied to Ford’s Fusion Hybrid sedan, a far sleeker and more aerodynamically efficient vehicle; Ford first attributed the discrepancy to driving style, but it soon became evident that the engineering of the vehicle was at fault for the shortcoming.

“We’re definitely seeing consideration on C-Max decline over time,” the Detroit Free Press quoted Joe Hinrichs, Ford’s president of the Americas, as saying. “We need to reinvest in the product because it’s a great car.” Sales for the C-Max slid 39 percent last month. For the year, C-Max sales are down 43 percent. Ford ended up compensating owners of the C-Max for its misstated claims, announced last August. Despite the decrease, though, the C-Max still manages better fuel economy than its principal rival, the Toyota (NYSE:TM) Prius v — albeit marginally.

T = Technicals on the Stock Chart are Mixed

Ford stock has struggled to make significant progress in recent times. However, the stock is currently surging higher and looks set to continue this path. 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 between its rising key averages which signal neutral price action in the near-term.

F

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

24.84%

43%

41%

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

May Options

Average

Average

June Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral 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’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?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

85%

-69%

15.38%

14.29%

Revenue Growth (Y-O-Y)

3.58%

11.84%

14.71%

10.37%

Earnings Reaction

0%

1.37%

2.53%

-0.22%

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

P = Excellent Relative Performance Versus Peers and Sector

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

Ford

General Motors

Toyota Motor

Tesla Motors

Sector

Year-to-Date Return

5.22%

-15.60%

-11.10%

38.10%

5.15%

Ford 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 ended up stuck between the Environmental Protection Agency and its customers when it was revealed that a formulaic error had seriously high-balled the expected fuel economy averages for the C-Max minivan-crossover vehicle. The stock has struggled to make significant progress, but is currently surging higher. Over the past four quarters, earnings and revenues have been rising. However, investors have had mixed 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.

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.

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