Posts Tagged ‘F’

What is going on in Japan? (HMC, TM, F, GM)

February 9, 2010 Leave a comment

Toyota Prius Crash Test

The Wall Street Journal is reporting that today Honda (HMC) is widening its 2008 airbag recall to include over 826,000 Honda and Acura vehicles.  The vehicles affected are model years 2001-2002, and cross the broad spectrum of vehicles sold by the company.  Add this to the well publicised woes that are currently plaguing Toyota (TM), and one could easily ask the question: What has happened to legendary Japanese reliability?

In the eyes of the general public, the main selling point for both these manufacturers is their reliability.  Ask a Honda or Toyota owner about how long they expect their vehicle to remain on the road, and most likely their answer will run in the hundreds of thousands of miles. High profile recalls, especially involving a critical part of the car, can damage a carmakers reputation for years.  Ask any of the American automakers.  Just from looking at this timeline (from Time magazine), one can see that in the last decade the Big Three Detroiters accounted for 5 of 7 large recalls.  Their reputation for reliability took a hammering during this time, and their sales suffered greatly.  It would not be a stretch to say that this was one of the main reasons for the recently abysmal performance of Ford, GM, and Chrysler.

However, the Japanese recalls present a fantastic opportunity for these three companies to realign themselves with the idea of a quality product.  They have already been making massive strides.  GM brand Cadillac came third in the JD Power Initial Quality Study for 2009, Ford was 9th and Chrysler was 10th.  All companies handsomely beat the market average.  And from crisis comes opportunity. Chrysler has created offers and discounts for people who trade in Toyota vehicles.

So as an investor, is this “crisis” actionable? Long term Toyota shareholders should be furious at the company’s management. Their response to the recall was lackluster at best, damaging at worst, and the stock has lost about 23% of its value.  The drop seems to have stabilized as “knife-catchers” try to time the bottom, but more pain could be ahead during the Senate hearings.  Honda’s stock has held up well during the Toyotapocalypse, but the valuation is a bit high and this new news could set off a round of fear-induced selling.  Since Ford (F) is the only tradable component of the (Not-So) Big Three, we shall discuss them, and I think they present an interesting opportunity.  Certainly there is a lot of optimism built into the stock, but it holds a lower PE than Honda and Ford is absolutely the strongest of the Americans.


Disclosure: Long HMC, Proud owner of several (non-recalled!) Hondas, Long the market.

Should you participate in a Tesla IPO? (GM, HMC, F, TM)

February 3, 2010 1 comment

Tesla Model S Sedan and Roadster

On Friday last week, high-end automaker Tesla announced that is was planning a $100 million IPO.  This will probably be one of the most anticipated IPOs of the year, as Tesla is the highest profile electric automaker, an industry that is already struggling to live up to expectations of rampant growth and mass acceptance. The question remains, should investors be interested in the growth potential, or should they run and hide from this highly speculative stock?

A lot has been sprung on investors with the release of the company’s S-1 as filed with the SEC to declare the intent to issue shares.  In August of last year, the company announced that it was profitable for the month of July, however it has yet to maintain profitability for a year or even a quarter.  The company is highly dependent on the continual stream of government incentives and the full drawdown of the DOE’s $465 million loan offer.  While President Obama has made alternative energy a top priority, nothing from the government should be taken for granted at this point with all the noise being made about deficit reductions.

The company’s flagship product, the Roadster, is slated to be discontinued in 2011 and a replacement will not be available until 2013.  And investors should be careful as small companies without infinite resources have a habit of missing deadlines.  The same caution should be applied to the forthcoming Model S sedan, on which it appears the company is pinning all its hopes.  The sedan, which few outside the company have driven, is expected to arrive in 2012 and would cost under $50,000 with a tax credit of $7,500.  This debut cannot be compared to the Volt, a ~$40,000 series hybrid sedan due next year, as the success (or failure) General Motors is not dependent on one car.

Bottom line is that, as with most IPOs, Tesla Motors’ stock will not be for the weak.  As we get closer to the (as yet unannounced) time when Tesla will actually sell the shares, we will get an indication of pricing and total IPO size, but right now this one feels a bit too risky for my blood.

Should investors crave exposure to companies heavily involved in moving the internal combustion engine into the 21st century, Honda (HMC), Ford (F) and Toyota (TM) spring to mind.  Honda has always been a champion of small, powerful and highly efficient naturally aspirated engines, and were the first automaker to sell a hydrogen powered car to the public (the Clarity).  Ford is championing their Ecoboost engines, which use turbochargers to gain class leading MPG while delivering great performance.  It may behoove investors to avoid Toyota until they work out their issues with this recall, however they are the leader in hybrid technology and have highly skilled engineering teams at their disposal.


Disclosure: Long HMC, no position in any other stocks mentioned

Follow-Up: Technical Trouble on the S&P 500 (SPY, GS, JPM, AAPL, CSCO, GOOG, F, GE, CAT, GLD, UUP)

December 8, 2009 1 comment

We have posted discussions about this in the past, most recently on November 25th and also on October 30th, where we looked at the charts and decided that the S&P 500 was possibly in for some trouble.  On November 25 the broad market index closed at 1111.18, and today it closed at 1091.94, for a loss of 1.7%.  Basically, the market has gone nowhere in that time.

What has happened, however, is that the chart has given us some more signs that the market is running into trouble.  Here is a 1 yr daily chart of the SPX, similar to the one we showed in our previous posts, except with some updated lines.

As you can see, we still remain unable to break above that 1120 line (yellow horizontal line), which is the long term 50% Fibonacci retracement line from the 2007 high to this years low.  It is likely that we are seeing heavy resistance at this level as traders anticipate this weakness and front run it to exit positions for the year.

Additionally, this chart shows that we have broken the uptrend that was established since the March lows.  Keen observers will note that this also happened in October, but the break is much more definitive this time especially when combined with that price ceiling. However, we will need to take a look at where we close on the weekly chart because that should be much more indicative of future movements.

For good measure, the same analysis applied to the E-Mini futures (/ES) yields similar results:

The /ES is attempting, and thus far failing to break through its own ceiling which has been established at 1112.  As you can see, the E-Mini futures just broke below the upward trendline that has defined this rally since March.

The root cause of this is, in our opinion, fund managers selling off risky assets to lock in the substantial gains some of them have been able to accumulate during this tumultuous year.  Obviously, this situation is not sustainable, as mutual fund managers often have a mandated maximum cash balance, and hedge fund managers generally do not like to have their end-of-year statements to clients say that they are in cash.  But there is a lot of money available to be taken off to the sidelines, so this situation may continue through the end of the year.  It will be important to watch leadership stocks over the next couple weeks such as Goldman Sachs & Co. (GS), JP Morgan Chase (JPM), Apple (AAPL), Cisco, (CSCO), Google, (GOOG), Ford (F), General Electric (GE), Caterpillar (CAT), etc. and of course gold (GLD) and the US Dollar (UUP). We’ll be making a follow up to this over the weekend.

-Lucid Markets Team

Disclosure: Long GS, CSCO, GOOG, GE, GLD, UUP, JPM and the stock market in general through various other positions.