With the economy teetering on the brink of a double-dip recession, the last thing you'd think of buying is an auto stock. So why did I buy 500 shares of Ford yesterday?
Today is my birthday – 56, if you must know – but I started celebrating yesterday by buying some Ford stock. I picked up 500 shares at $10.49, for a total investment of $5,247, including the $2 commission. You’ll see it, along with other stocks I own, in my online portfolio.
It may seem like a crazy time to buy any stock. For one thing, everybody and their brother is selling these days. (When I bought Ford yesterday, the Dow was down about 450 points.) And the headlines couldn’t be worse. From this article at USA Today describing yesterday’s action:
Wall Street was walloped by bad news on multiple fronts: Morgan Stanley put out a dismal forecast for global economic growth. A key reading on housing came in worse than expected. And a report showed a significant slowdown in the U.S. manufacturing sector.
And if you think that’s bad, how about some depressing news specifically about car manufacturers? From this article published yesterday by Bloomberg:
Analysts are reducing estimates for U.S. automobile sales for 2011 and 2012, citing weak consumer confidence that has slowed the pace of recovery since May.
There you have it: reasons not to buy stocks in general and car stocks in particular. So why did I buy Ford?
Because it’s winter, and Ford is a straw hat. In other words, it’s on sale. During the last year, Ford’s been as high as $19, and the low was about $10. According to research from Standard & Poors, it’s going to earn about 2 bucks this year and the same next year. That gives it a Price/Earnings ratio of 5 – it doesn’t get much better than that. Here’s a cut-and-paste from the Standard & Poors stock research:
Improved consumer perception of Ford products and rising vehicle demand should outweigh the potential negative volume and mix effect from higher gas and commodity prices, in our view. Our 12-month target price of $18 is equal to 8.6X our 2012 EPS estimate of $2.10, based on historical and peer P/E analysis.
In case that looked like “blah, blah, blah,” what they’re saying is they think the stock could go to $18 within a year. They rank the stock at 4 of a potential 5 stars.
But what about the potential impending recession? There’s no doubt Ford will go lower if a double-dip does materialize. In that case, I’ll be wrong on the timing – but I still think I’ll be right on the stock. In other words, I think Ford is a genuine comeback story and will ultimately pay off. True, if the economy is going south, I may be waiting a while. But what am I missing – earning .01 percent on my savings?
Bottom line? If the Chicken Littles are wrong and the sky isn’t falling, I’ll make money sooner. If they’re right, I’ll make money later. But I’m confident that I’ll make money one way or the other.
I’m not recommending you buy Ford. As I say in red letters above my online portfolio, do your own research and make your own informed decisions. But even with the terrible drubbing stocks have taken in the last month, I’m still up nearly 50 percent in a little over two years. I didn’t do it by being smart: I did it by buying when other people were selling.