Opportunities for Trading Ford (F)

02/02/2010 12:01 am EST


In the last quarter, Ford Motor Company (F) swung to its first quarterly profit in the past five years, and there are plenty of indicators that suggest a bright outlook for one of the first automakers in the United States.

From a fundamental perspective, things seem to be heading in the right direction for Ford. The company remains competitive, has indicated positive operating cash flows, and has boasted a 22% increase in revenues from a year ago.   Additionally, Ford was the only large US automaker to make it through the global financial meltdown without reorganizing under a government-managed bankruptcy.

Ford is destined to gain market share at the expense of Toyota’s (TM) current problems. Toyota has suspended sales of eight of its top sellers and Ford produces several vehicles that are direct competitors to the recalled and suspended Toyotas.

To further add appeal to Ford’s vehicles, the company has been focusing on fuel efficiency, compressed natural gas, electric vehicles, and cars that utilize bioethanol/gasoline blends. The company currently sells 13 different bioethanol/gasoline (such as E85) vehicles in North America and Europe, and has recently teamed up with Southern California Edison (SCE) to examine the future of plug-in hybrids in terms of how home and vehicle energy systems will work with electrical grids. These measures have paid off for the Detroit-based firm as its Ford Focus, which is deemed a “green car,” has been a hit among automobile consumers.

From a technologically innovative perspective, Ford is the first automaker to offer HD radio on iTunes in select models, which is likely to bolster its appeal to the consumer in the 18-35 year-old age range.

On a global platform, Ford continues to be a dominant player. A recent study indicates that one in every six new vehicles in the United Kingdom is a Ford. Additionally, the company’s dominance and presence in the Asia-Pacific region is increasing as Ford’s now comprise nearly 20% of all new auto sales in Australia.

Lastly, some economists and auto analysts expect demand for automobiles to gradually increase as nations around the world emerge from the recession and start to pave the path to economic growth.

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In a nutshell, it appears that the company founded by Henry Ford is likely to have a bright future and offer opportunities. For a more diversified approach to investing in Ford, one can consider the following ETFs:

  1. Consumer Discretionary Select Sector SPDR (XLY), which allocates 3.5% of its assets to Ford and closed at $28.91 last Friday (January 29)
  2. PowerShares Dynamic Consumer Discretionary (PEZ), which allocates 2.7% of its assets to Ford and closed at $19.46 on Friday
  3. PowerShares FTSE RAFI US 1000 (PRF), which allocates 2.1% of its assets to Ford and closed at $46.22 on Friday

Although there are numerous positive forces that are likely to enable Ford to reap the benefits, it is equally important to keep in mind the expiration of government stimulus programs like “Cash for Clunkers” and other risks that could cause equities to decline in value. A good to way to protect against these risks is through the use and implementation if an exit strategy that triggers price points at which an upward trend could potentially be coming to an end. 

By Kevin Grewal, contributor, SmartStops.net

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