Buy A New Car To Fix A Taillight?
The Dynamic Wealth Report
February 18, 2010
Just a few days ago, I spent several hours at the local Ford dealership. I was there to pick up a brand new car. For those of you who know me,
I’m a BMW kind of guy. I love my BMW and consider it one of my best
purchases ever.
While I love my BMW, in full disclosure, I’m not a big car guy.
I don’t really care about horsepower and torque. You won’t often find me
discussing platinum plated sparkplugs or new designs for fuel injection
systems. I like the way cars look. I like the way they ride. But that’s
about it.
Linda, however, needed a new car. She’d driven her old Ford Expedition
into the ground. It has more than 150,000 miles on it. Some of the power
windows don’t work right (not good when it rains).
The rear AC unit makes a strange clicking noise. And the rear taillight
is broken.
Every time the old car went into the shop, the repair bills were
reaching new highs! (A new high for a stock is a good thing, in a repair
bill, it’s never good.)
The car is used for towing Linda’s horses to practice or shows. She
needs a safe and reliable ride.
Linda did her research, found the car she wanted, and then decided to
buy. The purchase price was right… and the Ford dealer had very
attractive finance terms.
That’s how I ended up at a Ford dealership on a Tuesday night.
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Now keep in mind, Tuesday isn’t normally a hotbed of activity for car
dealers. But last Tuesday was apparently an exception. The dealership
was packed. The wait to sign all the paperwork was ridiculous.
I asked the sales guy what was going on.
His answer was not what I expected.
It had been crazy busy for the last few weeks. Sales activity was
picking up. They were selling more and more cars. The bad news from
Toyota was driving buyers into the Ford dealership. Attractive finance
terms were making it hard not to buy a new vehicle.
And many of their competitors had closed up shop over the last year…
that didn’t hurt either.
Clearly, Ford was doing well…
Back in March of 2009, Ford (F) was struggling. The stock had hit lows
never before seen. You could buy all the shares you wanted for the price
of a Starbucks coffee. I called it a lottery ticket. You could buy a
share for less than $2.50.
I underestimated how big the payout could be.
By November 2009, Ford’s stock staged a huge rally. We were sitting on
gains of more than 180%, all in just a few months. That’s when I made a
mistake.
I said to sell and take your money off the table… but the stock kept
running.
After my recent visit to the Ford dealership, I looked more closely at
the situation. The economic recovery is clearly taking root. And of all
the car companies, Ford is well positioned to profit from renewed
customer enthusiasm.
But I’m not the only one seeing this trend.
AutoNation (AN) recently made a stunning announcement. They expect auto
sales to climb by more than 10% this year. Why is this important? AutoNation controls more than 245 new vehicle franchises in 15 states.
To say they have their finger on the pulse of the auto industry would be
an understatement.
But they’re not alone. Penske Automotive Group (PAG) recently
preannounced better than expected earnings. And they’re seeing better
times ahead as well.
So what’s this mean for Ford?
It tells me the market is still in the early stages of recovery. It
could take a few years to return to more normalized levels… and Ford is
best positioned to take advantage of current market conditions. They’re
the most likely to expand market share.
As their market share grows, and as the economy improves, I see Ford’s
stock price moving even higher.
If you still own this stock, hold tight. If not, consider adding some to
your portfolio. While it’s not quite the steal I recommended almost a
year ago at $2.50, I do see the value of this company climbing over
time. Just remember to be patient and consider this a long term trade.
SPDR S&P Homebuilders (XHB) is gaining lots of traction
with investors. It’s up more than 56% from the lows. A resurgence of
building activity is no doubt driving some of the excitement.
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