Ford Motor Company (F) said in its Wednesday earnings that profits jumped 19% in the second quarter and sales in North America and Asia hit a record.
That’s great, but not enough to make this stock a buy at current pricing.
The bull case for Ford is obvious, so I’ll just run through it quickly:
- Ford earnings showed losses in Europe narrowed by 14% vs. last year and 25% from the previous quarter.
- Growth more than offset those losses, too, including a return to profitability in South America as well as record numbers at home on high-margin trucks and record numbers in Asia thanks to China growth.
- The company raised its full-year outlook, hinting it may post bigger profits than last year on growing optimism vs. previous forecasts of a slight decline in FY2013 earnings.
- Ample spending on restructuring in Europe and a build-out in China could mean big future payoffs beyond the short-term trends outlined here.
I don’t dispute the strength of Ford or the optimism here for the company. Furthermore, I can’t argue with the optimism across the industry for rivals like General Motors (GM), Toyota (TM) and Honda (HMC) as the auto market could hit 16 million vehicles sold in 2013, the highest annual rate since 2007.
My beef is with the fact that the gains have already been had, are already priced into Ford stock, and that Ford earnings don’t really change the narrative since the talk on Wall Street has been very positive for a very long time.
Ford stock is up almost 100% in the last 12 months, and GM stock has nearly doubled. Toyota is up about 77%. And despite troubles including continued overhang from the 2011 earthquake and tsunami, big recalls and a poorly received Accord relaunch, Honda is beating the market with about 28% returns in the last year.
That’s a hard track record to build on, even if there is a tailwind for the sector.
Consider homebuilders, which saw a similar run but have run up against a ceiling as of late. Major stocks in the space like PulteGroup (PHM) as well as the broad-based SPDR Homebuilder ETF (XHB) have underperformed in the last few months as investors have moved on to other hot sectors.
Expect the same to happen to auto stocks.
Ford is ambitious about its China plans, but the miracle of Asia auto sales is not a sure thing. And while the margin bump from a redesigned F-150 line and the secular recovery in housing has boosted truck sales in 2013 thanks to contractor and construction demand, that’s not exactly sustainable trend for every quarter going forward.
This is not to say Ford will implode. I expect it to do well in the next year or so, especially as Europe and South America improve. And after 16 consecutive quarters of profits, there is little risk of its 2.3% dividend rolling back, either.
But will Ford continue to outperform? I doubt it. So it seems prudent to trim back and move your money elsewhere, where the opportunity for upside is more significant.
- The overall auto market forecast is looking good. (Reuters)
- Ford earnings details. (CNNMoney)
- Louis Navellier rated Ford stock a “buy” to start July. (Navellier Growth)
- Why Ford is on a roll. (Money Morning)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.