How to Play Ford's Renaissance

NEW YORK (TheStreet) -- Recently, shares of Ford Motor(F) hit their highest price in five years, and there are plenty of indications a bright outlook lies ahead for the automaker.

According to the latest Consumer Report rankings, Ford is the only U.S. auto manufacturer that has improved its quality and surpassed Japanese automaker Mitsubishi on the reliability rankings list.

Ford also has been able to grab additional market share as recalls and quality issues have turned some consumers away from the world's largest automaker, Toyota Motor Company(TM), and as General Motors and Chrysler have struggled with their own woes.

Fundamentally speaking, Ford appears to be in good shape. The company has restructured its business model, helping it to report positive operating cash flows. It has increased efficiency through a more disciplined approach toward production levels and incentives, has developed new product offerings that focus on fuel efficiency and innovation, and has new UAW agreements that help it on the cost front.

These changes have helped Ford to expand globally and gain significant market share in Europe and the Asia Pacific regions.

The last force that is working in the automaker's favor is the possibility of increased demand for automobiles both globally and domestically. Purchasing power in developing nations is on the rise and demand for products like automobiles is likely to follow. Domestically, some experts are suggesting that the automobile sector will be the fastest growing U.S. industry over the next five years.

Ford looks fit after a company-wide overhaul. Its stock closed at $13.28 on Tuesday.

Gains in Ford's share price could help to lift the Consumer Discretionary Select Sector SPDR(XLY), which allocates 3.9% of its assets to Ford, and the PowerShares Dynamic Consumer Discretionary(PEZ), where Ford is the top holding and accounts for 3% of assets. XLY and PEZ closed at $33.08 and $22.39 on Tuesday, respectively.

Investors should be aware, however, that a slowdown in demand, a hiccup in the global economic recovery and incentives offered by competitors could rain on Ford's parade. A good way to protect against such risks is through the implementation of an exit strategy that identifies price points at which an upward trend could be coming to an end. And in the case of Ford and the ETFs that have stakes in it, those price points have already been hit.

According to the latest data at www.SmartStops.net, an upward trend in shares of Ford could come to an end at $12.74. An upward trend in XLY and PEZ could come to an end at the following price points: XLY at $32.04 and PEZ at $21.76. These price points change on a daily basis as market conditions fluctuate and updated data can be found at www.SmartStops.net.

-- Written by Kevin Grewal in Laguna Niguel, Calif.

At the time of publication, Grewal had no positions in equities mentioned.

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