Schaeffer: Fired up on Ford

01/09/2004 12:00 am EST


Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

If we gave an award for the best macro-market call for the past year, it would go to Bernie Schaeffer. At the market's lows early in 2003, he forecast a significant upmove for the market's riskiest sectorslow-priced techs and high-debt auto and airline stocks. For his top 2004 pick, he stays with an auto favorite.

"Fundamentally speaking, Ford Motor (F NYSE) has issued pleasant surprises over the past year, matching or exceeding Wall Street’s earnings expectations for the past five quarters. On the technical front, F shares have more than doubled in price since March, reaching a series of new 52-week highs along the way. Throughout this uptrend, the stock has benefited from consistent support from its ascending 10-week and 20-week moving averages. In addition, the shares have been outperforming the S&P 500 Index since early March.

"What’s intriguing about F heading into the new year is the overwhelming amount of bearish sentiment plaguing the shares, which I view bullishly from a contrarian standpoint, given the positive fundamental and technical backdrop. This pessimism is especially noteworthy in the media, which has F and the auto sector clearly in its crosshairs. Just in the past month, we’ve seen several articles in major magazines and newspapers bashing the carmaker (one was titled 'Can Ford Fix This Flat?' while a cover story from earlier this year proclaimed the 'Extinction of the Car Giants').

"Elsewhere on the sentiment front, options players are showing a preference for puts over calls; in fact, F’s put/call ratio is nearing an annual peak. Short interest is on the rise and currently sits near 90 million shares, which yields a short-interest ratio of 8.8 times the equity’s average daily volume. This leaves the equity vulnerable to a short-squeeze induced rally. Finally, Wall Street has yet to commit to F. At press time, only two of the 14 analysts (or under 15%) following F have named it a 'buy,' leaving seven 'hold' ratings and five outright 'sells'," according to Zacks. With the stock situated in new-high territory, it is likely only a matter of time until upgrades transpire, which are likely to give the equity a boost."

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