Ford: Contrary Driving

11/14/2003 12:00 am EST


Joe Sunderman

Vice President of Research and Development, Schaeffer's Investment Research

Schaeffer's Investment Research encompasses many strategies. One common factor among its analysts, is a focus on contrary analysis. Indeed, due to skepticism among analysts, traders, and the media, Joe Sunderman, turned bullish on Ford at its lows, and reiterates that positive outlook.

"We reiterate our bullish posture on Ford Motors (F NYSE)," says Joseph Sunderman, director or trading with Schaeffer’s Investment Research. "Ford definitely is not loved on Wall Street, which makes it appealing to us. The stock has been trending along its ten-week and 20-week moving averages since these two intermediate trendlines experienced a bullish crossover in late May. In spite of its relative-strength performance, their shares have not been able to shake the negativity from earlier this year. Wall Street is downright negative on Ford, with zero buys, nine holds, and six sell ratings on the security. Additionally, short interest stands at nine times the stock's average daily volume. Thus, this dichotomy sets up a situation where those bearish on the shares will need to reconsider their position with each uptick in the shares. S&P's Ratings Services lowered its ratings on F and all related entities to BBB- from BBB. The company responded to the downgrade saying they disagree with the new rating. They believe that the downgrade doesn't reflect the current state of the business, and that they are on track to meet 2003 financial milestones. The bullish reaction in the stock to this negative news reflects how many on Wall Street were anticipating an even harsher downgrade and more negative outlook. Traders should continue to target a move to 18.20 on F. We are upping our stop-loss to a trade below 12."

Schaeffer’s Investment Research’s Ron Taylor adds, "To find the types of stocks and options I most like, I run a filter searching for those stocks where options-related pessimism potentially exceeds optimism. I also like to focus in on the most liquid and widely traded names from an options standpoint. The final requirement that I put in place is that the stock must be trading above its 50-day moving average. This technical requirement allows me to zero in on names that should theoretically have some inherent relative strength versus the broader market. One of the stocks that jumped out from our recent screening is Ford. From a contrary standpoint, we would note that there was a bearish cover story in The Economist entitled 'Extinction of the Car Giants', and a recent book, The End of Detroit. This evidence of extreme bearish anecdotal sentiment is particularly notable on a stand-alone basis. It is not very often that you read multiple predictions for the demise of a major Fortune 500 company and blue-chip stock. What's more, predictions and cover stories such as these often come at major cyclical lows for an industry. With this pessimistic sentiment backdrop, Ford is a very interesting situation. The fact that the equity currently sports an attractive dividend yield of 3.25% makes it even more attractive, particularly in light of recent changes to dividend tax rates."


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