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Pump the Brakes on Ford Shares

Stocks in this article: F

Simple, Europe.

Ford continues to struggle with its European operations. Although some investors have begun warming up to shares of Ford on the premise that Europe is improving, I wouldn't be so fast to agree. Don't get me wrong, I love Ford and its stock. I just don't think that Europe is going to rebound quickly enough to benefit Ford in the near future.

Last quarter alone Ford lost more than $450 million in the region. Although it's hard to lay off workers and bear some upfront costs of shutting down plants, CEO Alan Mulally is doing his best to right the ship. He predicts that Ford will be at breakeven by 2015 in Europe.


Ford lost approximately $2 billion in Europe for fiscal 2012. With $460 million last quarter, it is very slowly closing that gap to breakeven. Additionally, there is very little economic data that would point to Europe being in any sort of "recovery."

Although many continue to state that Europe is bottoming -- or close to bottoming -- I would advise investors to pump the breaks, no pun intended. The auto stocks will be a huge beneficiary of an economic recovery in Europe. But it will be slow.

I own shares of Ford because of its long-term value, earnings power and strong dividend yield, but this is not a stock to chase. It will pull back and go lower. That goes for the entire auto sector as well.

Ford shares recently tried to break through the $16 ceiling but eventually failed, even with those stellar sales numbers. Wait for a crack below $15 before dipping your toes in. Traders have a habit of pumping the stock ahead of monthly sales data and earnings reports. Anything short of perfection will cause a slight selloff.

Things are improving for the autos and they have a solid long-term outlook, but pump the brakes before you go "pedal to the metal."

At the time of publication, Kenwell held shares of Ford.

-- Written by Bret Kenwell in Petoskey, Mich. .

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Bret Kenwell currently writes, blogs and also contributes to Rocco Pendola's Weekly Options Newsletter. Focuses on short- to intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.
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