Fundamental Valuation: When using the EBO model to calculate the fundamental valuation of Ford, the fundamental value is $16.80 suggesting that Ford is undervalued due to its current price of $14.54. The EBO model that is being used was borrowed from Professor Charles Lee at Stanford University. This model makes the assumption that there will be a seven year growth period using the long term growth of Ford. After seven years the stock will revert back to the industry ROE for the last five years since this model has a timeline of 12 years.
Technical Analysis: The technical analysis on Ford is bearish. All technical analysis has a three month timeline. Bollinger bands with a 50 day moving average and a 2.5 standard deviation have neural indications. The stock price is between the moving average and the lower band but is not close enough to the lower band to indicate a future upward move.
The stochastics are neutral and slightly bullish. The %K and %D are almost the same which is a neutral indicator. However the %K is less than 20% which is a bullish indicator. Two stochastics were ran to make the graphs easier to read. The %K was set to 25 on both graphs while the %D was set at 2 and 3 for better analysis.
The moving averages were bearish because the stock price is significantly lower than both the 25 day and the 50 day moving average. Both averages have a negative slope which is also a bearish indicator.
The MACD (moving average convergence divergence) is less than zero, negative slope, and the MACD is less than the 15 day moving average which are all bearish indicators.
The linear regression is a bullish indicator. The linear regression has a positive slope which is a positive indicator for long term investing (over a year) while the current stock price is below the linear regression which is a bearish indicator it could also be a great time to buy the stock since the stock should revert to the linear regression line. When looking at linear regression for five years or less the slope is positive but when looking at the ten year linear regression the slope is negative. This is a good sign since in the past two years or so with the auto industry crisis the US auto companies are starting to become more profitable which is seen in the linear regression of Ford for the past five years.
The 100 day momentum for ford has a negative slope and is less than the base measure of 100 which are both bearish signs.
Overall the technical analysis shows that the stock has been struggling and at this moment in time is not a good time to buy. Also remember that this is only the technical analysis and that smart investors buy low and sell high.
Recent News: According to an article on Reuters.com (http://www.reuters.com/article/2011/05/26/us-romania-infrastructure-idUSTRE74P0ZK20110526) Ford motor company has invested in Romania to make automobiles due to the country’s flat tax and cheap labor. The company made projections but warns that Romania’s roadways are in poor condition which will make Ford’s projections high unless Romania starts to invest in their transportation infrastructure.
Recommendation: S-Hold / L-Buy For a three month recommendation I would give Ford a hold recommendation but would give it an outperform recommendation for six months or more. The company was the only US automaker who did not need a financial bailout which is a good sign for the company. The company seems to be fixing some internal problems which will help with long term growth for the company. Ford is obviously reinvesting profits into long term growth since the company is not paying a dividend which is good for long term investors (over a year). Morning Star has given a Ford four stars out of five and analysts from Reuters seem to be split between a hold and a buy recommendation. Like I said it is a great buy for a long term investment but is not such a good buy for the short term. The stock has a beta of 2.38 which can be seen by looking at how the stock does compared to the S&P and the Dow. The US and global markets are pretty volatile right now due to conflicts in the Middle East along with the financial troubles in Europe. This volatility could be good for a day trader but not so good for a short term conservative investor.
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