Trade of the Week: Long Ford
Originally published at 10:51 A.M. EDT on June 22, 2015
* Ford's shares have underperformed those of General Motors over the last four weeks.
* Despite my protestations that we will see "Peak Autos," current industry trends remain strong. That said, as was the case with GM, "peak autos" seem to have been discounted in Ford's modest price-to-earnings multiple.
* The U.S. dollar recently has weakened, which is a plus for auto manufacturers' profits.
* Share price reward-versus-risk ratio seems attractive at current levels.
* My subprime auto lending concerns seem at odds with the data thus far, as delinquency rates are now declining year over year.
Trade of the Week: Shorting MetLife
Originally published at 10:23 AM EDT on June 22, 2015
* MetLife, like many financials -- especially of the money center bank kind -- that are asset-sensitive have done famously over the past few months in the market. Specifically, over the last three months, MET shares are up 9% compared with a slight drop in the S&P Index.
* After making a new high this morning, the shares are now "overbought" technically.
* I expect interest rates to trend moderately lower over the balance of the summer, with the 10-year yield moving back toward 2.10% to 2.20%.. If correct, MET's profits will be challenged as reinvestment opportunities may deteriorate in the months ahead.
* MET's shares usually trade in a correlated move to interest rates. Higher rates are friendly to MET shares, while lower rates are unfriendly.
* My view is that MET is trading at or near its private market value with little upside to its shares.
Finally, for those like me who are long bank stocks, a short MET position might be considered as a hedge (or pairs trade) against other long financial exposure.
At the time of publication, Kass and/or his funds were long GM, F, BAC, C, JPM, WFC, BBT, MSL, SONA, MBFI, EFSC, STL, FITB, FMER and RF, and short MET, although holdings can change at any time.
Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.