One thing I always look for in the market is big swings in a stock. Whether on the upside or downside a big swing can represent an overreaction to news. That overreaction can present unique buying or selling opportunities. All to often trades happen on emotion rather than fundamentals and savvy investors can take advantage. Yesterday Ford (NYSE: F), one of Sirius XM's bigger OEM partners, took a big hit on their report and fell from a price of $18.79 to $16.27. Is it time to buy Ford?
Ford has had a tremendous run in the past year. They were able to outperform time after time without getting a government bailout and have put some great new cars on the road. The company is fast becoming a dashboard technology leader and their SYNC and MyFord systems have been made available in every tier of their automobile line-up. The "digital dashboard", capable of connecting consumers to their audio entertainment in ways never seen before, represents a new wave in 2011 and beyond. Ford has been a leader, and has integrated these high demand items into more cars than perhaps any other maker.
The stock price Ford took on Friday January 28th was, in my opinion, far too much of a correction. Auto sales in January promise to be stronger on a seasonally adjusted annualized sales (SAAR) basis than in any month in 2010. In 2011 auto sales are projected to approach 13 million and Ford is among the sales leaders month after month year after year. Last year auto sales came in at only 11.6 million. With overall projected auto sales coming in 11% higher than the last year doesn't an over 13% drop in Ford's stock price seem a bit extreme?
What we seem to have here was the street building higher expectations into Ford than they should have. yes, it is possible that Ford was in an overbought situation, but the outlook is strong for 2011 and Ford is well positioned in the automobile landscape. The company missed estimates by $0.14, but that was on the heels of of large investments into new auto launches and a weaker than expected Q4 in Europe. The story of 2011 is that U.S. auto sales will be big, and having new launches will only help Ford along.
One contributing factor to Fords miss in Q4 was a $960 million charge for debt reduction. In 2010 the company brought debt down from over $33 billion to just $14 billion. Moves like this hit the bottom line, but in essence the debt picture for Ford is improving in ways that could impact the equity dramatically going forward. The company's debt reduction could lead to a improvement in their rating and perhaps even bolster it to investment grade status in 2011. The company has expressed and guided that 2011 will bring profits as well as better cash flow.
In my opinion investors should take a serious look at Ford.
Position - No Position Ford