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Ford Motor Company (F) Stock: 3 Charts That May Make You Want to Sell

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

When Ford Motor Company (NYSE:F) announces second-quarter numbers on July 26, investors in won’t be expecting a particularly impressive quarter. In fact, F stock holders have reason to believe per-share profits will slide 17% despite a slight uptick in revenue.

Ford Motor Company (F) Stock: 3 Charts That May Make You Want to Sell
Ford Motor Company (F) Stock: 3 Charts That May Make You Want to Sell

Source: Shutterstock

That’s because Ford — along with rivals like General Motors Company (NYSE:GM) — has been forced to offer generous incentives to car buyers just to keep new vehicles moving off its dealers’ lots and onto consumers’ driveways.

Yet, with shares up 10% since May’s low, the market is effectively saying that outlook is too pessimistic.

Are all those buyers right? Was Ford stock punished in the first quarter for a crime it didn’t commit, and are traders now correcting their mistake? A trio of charts about the state of the auto industry tell the tale of why investors may not want to count on an earnings beat from Ford.

Charts Don’t Lie

Last year was a record-breaking one for the U.S. auto industry, with the country’s consumers purchasing a whopping 17.54 million new vehicles.

That’s a tough act to follow, giving rise to the term “peak auto” — the level of car sales that’s so strong it crimps demand for new vehicles going forward. With passenger car sales down 11.4% year-to-date and truck sales only up a bit overall, these companies are fighting an uphill battle.

Not everyone agrees. Aside from F shares recent gains, investors in both GM and F stock are quick to argue that a car-sales plateau at 2016’s record levels still means carmakers are cash cows, and 2017 should be another great year.

Auto sales aren’t plateauing, though. They’re sinking, and three different irrefutable charts support the claim.

First and foremost, counting cars and trucks together, in eight of the past 12 months, total car sales have been lower rather than higher on a year-over-year basis. It’s been a “just barely” comparative loss, but a decline all the same. The real red flag on this chart of the sales data, though, is the downward trend since the end of last year.

U.S. Auto Sales, by Month
U.S. Auto Sales, by Month


Click to Enlarge

The bulls will argue that truck sales are still firm, and since that’s the industry’s big moneymaker, Ford and GM aren’t in dire straits, just yet. The recent data says even the truck stronghold may finally be crumbling though. Some GM dealers are offering as much as $7,700 worth of incentives on a well-equipped Silverado that’s normally priced around $44,000. Ford’s knocking more than $5,000 back on its popular F-150 truck.

That generosity comes right off of Ford’s bottom line, but is a necessary evil to shed the trucks the company didn’t sell during calendar Q2.

Auto Loan Demand
Auto Loan Demand


Click to Enlarge

Be that as it may, car buyers are still decreasingly interested in making a purchase. Despite a willingness to make a car loan in excess of five and a half years, banks are reporting less and less demand for auto loans. In fact, according to the Federal Reserve’s economic data archives, most banks are saying demand for car loans fell on a year-over-year basis in Q1 and Q2, after several years of weakening-but-positive growth.

Granted, banks aren’t the only way to get a car loan. They’re still one of the primary ways to buy a set of wheels, though, and it’s unlikely other lenders are experiencing a different degree of interest.

 

Perhaps the most damning argument working against Ford stock, though, is the trajectory of its monthly sales. While May’s comparison was slightly better than the previous year’s monthly tally, April’s and June’s numbers were both weaker than year-ago levels.


Click to Enlarge

Ford Motor Unit Sales, YOY
Ford Motor Unit Sales, YOY

July’s steep discounting not only underscores how tepid the second quarter’s sell-through was, it also suggests the glut may not be over yet.

Bottom Line for Ford Stock

The bullish counterargument leans on the fact that as of Friday’s market close, Ford stock is priced at an attractive P/E ratio of 12.4 and a forward-looking number of 7.3. That’s dirt-cheap to be sure. Stocks are generally cheap for a reason, though. More than that, stocks tend to be valued on a “what have you done for me lately?” basis. And lately, Ford hasn’t done much.

There’s a chance Ford Motor could dish out a pleasant surprise on Wednesday morning. The data, however, says F stock remains a liability.

As of this writing, James Brumley held a position in F stock.

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