3 Reasons to Buy the Stock:
- Strong dividend which could increase
- Attractive price with strong lines of business
- Low energy prices will continue to make for a healthy auto industry
Summary:
Even though Ford’s share price has been struggling, we believe there are some underlying
items which makes the company an attractive investment right now. Ford is a dividend paying machine giving its share price a floor to its intrinsic value and we believe Ford could raise it’s dividend this year. Add together Ford’s $.60 dividend with the $.25 special dividend which was just revealed and its yield jumps to more than 7%.
Primarily using Ford’s historical P/E, we believe it’s currently undervalued. Ford’s normal P/E over the last 5 years is just short of 10, with the least being around 2 and the highest being around 20. The lowest analyst estimate is $14, but the average analyst estimate for the stock is almost $17. Thus, if Ford is in-line with their average P/E it will trade around $15, which is an increase of about 30% from current levels.
With oil and gas looking to remain low for the foreseeable future, the derivative effect will continue to be a boost to the auto industry, further benefiting Ford. The low prices have helped the increase in vehicle renovations amongst consumers, and it reduces the input costs for the company.
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*Disclosure: Stocks discussed to watch are strictly the JU FIBER Club’s opinion and not a recommendation to buy or sell positions.
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Oil prices will continue to decline and stay low for as long as there are factors to keep global oil inventories at its all time high. U.S. crude oil inventories reached a new levels that has not been seen in at least the last 80 years. Fracking and tar sands have added 6 million barrels of oil a day to global supply since 2009, with another million about to come out of Iran with sanctions being lifted. Not to forget that the Fracking industry is a USD 1 trillion industry…many speculating it to be a bubble industry thanks to endless global QE, which propped up price of oil and made junk bonds so affordable. However, Franking wont last long as it has always been among the highest cost producers.
In a growing world not awash with debt, falling oil prices could be a positive outcome, only if China and the emerging country commodity exporters were not already at the center of the emerging slowdown. But this is not what we have today. The whole world has unprecedented debt concentrated more than ever in the emerging countries, especially China. And this global debt is most leveraged in the energy sectors that have both been further magnified by endless QE and zero interest rate policies.
If a minor subprime crisis of 2008 could trigger a global financial crisis and meltdown, what do you think the collapse of the highly leveraged global oil industry could do?
Looking forward, I think we will see extreme central bank monetary policies creating major economic and financial distortions as they will try to invigorate the sluggish economy, which its problems stems from a more structural rather than cyclical factor. We will experience monetary policy to become an ineffective program in boosting growth, as we will see the early stages of unwinding the largest credit bubble in history.
For now, I am more convinced to cut my equity exposure, buy gold and ride out the storm.
🙂
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