Amidst the slowdown in the global economy, the US automotive sector continues to fare remarkably well. In March, the Ford Motor Co. (F) achieved a milestone by overtaking General Motors in monthly sales. In this regard, the financial news edition Barron’s stated that the shares of both the General Motors and Ford may see an appreciation of more than 25% this year. A quick look at the current scenario will give an idea as to where the share price is heading in the near future.
In the first-quarter of 2016, on a y-o-y basis, the company reported a 14% increase in sales to 314,454 vehicles in the USA. Similarly, on a y-o-y basis, the Ford China’s sales grew 5% to 114,788 vehicles in March 2016.
In Europe, the sales of Ford vehicles increased 8.4% to 401,200 in the first-quarter of fiscal 2016. The growth rate is more than 50% higher than the average industry growth rate of 5.4% in Europe.
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In 2016, the automobile sales in the USA are expected to be in the range of 16.5 million to 17 million vehicles. If the overall sales decline to even 11 million, still, Ford will be able to break even. The company no longer has an obligation to pay for the health care costs of retired workers, who were part of the union. The medical costs are taken care by the trust funded with billions by the automakers. The trust is now run by the United Auto Workers.
The Michigan, Detroit based company also increased the number of dealers to ensure that the customers do not face any difficulty in booking the vehicle. Last summer, the company was handicapped by the shortage of inventory and dealers. This time around, the company carries a huge inventory of heavy fleets, which would enable it to stay ahead of GM in sales in the coming months.
The forward price to earnings ratio of the company is only 6.2. Furthermore, the company’s free cash flow has increased from $3.557 billion in 2012 to $8.974 billion in 2015. The dividend yield is an impressive 4.60%. The five year average price to book value ratio of Ford is 4.3. However, currently the stock trades at a price to book value ratio of 1.8. Thus, it is almost certain that the price would shoot up in the coming weeks.
The price action chart indicates firm resistance at 13.60 and support at 12.30. The stochastic indicator, which is on the verge of crossing above the 50 mark, indicates that the stock will soon rise. A break above 13.60 will take the share price to about $15.
Ford Stock Price: April 20th 2016
Thus, a one touch call option contract should be traded by a US binary options trader. In the current scenario, a strike price of $15 and an expiry in the third week of May is suggested.
