Ford Motor (F)

When you look at automotive manufacturers, you want to look at auto sales. We have had some shaky numbers, and shaky information on auto sales in the US and globally going forward. The chart shows this has been really meandering sideways, for at least the last 12 months. The 200-day moving average has been flat. Share price is below the 200-day moving average. Technically, this is not something he would want to buy.

His company owns no autos. First Quarter earnings will be less than expected because fleet sales are down. But the stock was only down 10 cents. North American production has probably peaked. He thinks it will stay there longer than people think. F-N has a big presence in Europe where auto sales are starting to do better. F-N will be a beneficiary long term. Cars are made better than they used to be and they last longer.

He is always amazed at how many people like to buy auto stocks. Over the long run, they haven’t made any money. This is the only auto company that didn’t have to get bailed out. There are over 30 automobile manufacturers globally. 30 different choices are too many to make any money in.

It is a tough environment for the autos now that Trump has taken an interest in them. She still likes them and feels they will remain profitable. She thinks EPA restrictions will ease for them.

It is tied to the economy. We hit a high on US auto sales. You may see positive surprises or a downturn in the auto space. She does not do this for her clients.

He doesn’t own the primary auto makers. They are truly cyclical companies and you should buy them at high multiples and sell them at low multiples, as strange as that seems. He prefers a derivative play like MG-T, or US parts manufacturers. He thinks there are more legs to those stories. They are also more involved in the aftermarket.

Ford and General Motors have not been good investments in the past few years. Coming out of the 2008-2009 financial crisis GM, went bankrupt and cleaned up its balance sheet tremendously. Had record profits last year with another this year. The market doesn’t care. The same thing with Ford. Both are trading at around 6X earnings. He believes the market assumes that we are at peak car sales. Believes both companies can use gears on their balance sheets and income statements to grow earnings, whether through cost cutting or share buybacks. In the meantime, you earn a handsome dividend of about 5%, which probably will go higher.

A good company to own. Of all the US automakers, this is the one that didn’t take any money during the financial crisis. However, we are kind of at "peak auto", and they are not going to put out that many more units in the 18 million that we have been doing in North America. A cyclical business, and we may be at the top and heading down. If he had to bet, this would probably be a decent way to go. You could buy a little bit and scoop your 5% yield, and just see if it hangs in there.

He thinks good things happen when you buy cheap stocks. On the other hand, buying the S&P500 is a flawed thesis. He excludes the deep cyclical stocks like autos and airlines. There are too many players. He doesn’t want to own companies where there are that many operators.

She has avoided the auto OEMs, as they tend to be very cyclical. The company cautioned on the whole N.A. auto cycle. There have been a lot of incentives to drive sales. Her preference would be to buy one of the auto parts manufacturers, so you don’t have to make a particular call on one OEM.

(Market Call Minute) Cheap. Is the auto cycle over?

Too risky? Came out of the financial crisis and have restructured into far better shape. The trouble with cyclical companies is that they end up paying out too much in dividends, and then, if the cycle turns nasty, they have to cut them. He doesn’t see anything imminent in terms of dividend cuts. It is probably okay, but keep in mind this is a cyclical company.

The company warned of a miss in results, but held up their guidance for 2016. The car companies are at exceptionally low multiples. This is a good company. Dividend yield of 4.7%.

(Market Call Minute.) He wouldn’t be a buyer here, but has a great respect for management.

Auto OEMs is a very highly cyclical business. Some are saying that North American auto production is near peak levels. Not expensive, trading at single digit multiples. However, when things turn down, earnings can come down quite a bit. Usually you try to buy these early on in their cycles.