On today’s show my guest Gordon Scott, CMT, the Macro Strategist for Chilmark Capital, made the case for auto makers, specifically Ford (F). Now, full disclosure, I am prejudice, I have always had Ford Trucks and going on year 11 Bessie (My Ford F250) is part of the family and I am not alone. According to The Wall Street Journal, the average car on the road in the U.S. is now a record 11 years old (like Bessie) industry executives say and around 20% are a whopping 16 years old.
Now, just because I love Bessie, that’s not a reason to buy the stock. So let’s look at why Investors should take a look at Ford. First, they were bold and entrepreneurial enough to rely on themselves and not the Government to get through tough economic times. That shows leadership and conviction to the shareholders. Secondly, as much as I love Bessie and she does run great, the plastic is wearing out and she ends up in the shop more than ever these days. The fact is sooner rather than later she’ll become a farm truck relegated to the tasks of feed and hay. Which means, I will be back at Ford again soon, buying a new truck and signing on for another ten plus years of maintenance, service and parts (the real profit center)?
In this current environment Interest rates are low and that allows Ford to charge their customers more for their vehicles and allows for higher profit margins. I believe we will continue to see historically lower rates for the next eighteen months with all the QE. Furthermore, what a great sales pitch: “buy a car now Mr. Jones, before our government devalues the dollar more, causing inflation. Heck, three years from now you will be paying twice as much for the car as you can buy it for today!”
Ford is also doing well internationally which is great for short and long term growth, recently they announced that auto sales in Thailand continued its strong 2013 performance as February sales increased 32 percent year-over-year to 4,493 units, reports 4-Traders, marking the best ever February sales in Thailand for the automaker.
Ford is currently paying a three percent dividend and is traded at an industry low P/E ratio of nine. Finally, I like the technicals here, I believe you may buy it a little cheaper in the mid $12’s however the upside here is in the $16 plus range. All things considered, I am sad about having to retire Bessie soon but maybe the profits from owning Fords stock will ease the transition.