I’ve always been a “car guy.”
Back in my high-school, college, and twentysomething years, the term was “motorhead.”
I liked to soup up cars, did a bit of drag racing, and restored several antiques and classics with my Dad.
So I know cars.
And as I told Private Briefing readers in a column a few weeks back, I also know Ford.
I’ve been following the brand, and Ford Motor Co. (NYSE: F) itself, since my teen years.
And I really stepped up my focus on the company – as an investment – when I became a journalist in the mid-1980s.
[ad#Google Adsense 336×280-IA]Late last month, I predicted that Ford would be one of the best stocks for 2015.
And a report that I came across yesterday bolstered my belief in my forecast.
Let’s take a look…
It’s Like the Financial Crisis Never Happened
U.S. sales of new cars and trucks will rise 2.6% to reach 17 million units in the New Year – the best showing since 2005, according to a new forecast by TrueCar, the Web-based auto-sales service.
And that follows a year (2014) in which combined U.S. sales of new and used vehicles will rise 8.3% to reach $1.1 trillion – creating a momentum so strong that it will carry into the New Year.
“The overall buying power in the auto market sometimes isn’t fully appreciated,” TrueCar President John Krafcik said. “To put this in perspective, new vehicle revenue alone will surpass the value of new single family homes in the U.S. nearly three times [in 2014]. It’s a remarkable year for the industry as both sides of the market are seeing notable growth and commanding strong pricing power.”
Pricing power – a term that investors love to hear.
What it means is that there’s so much demand for a product that the company making it can raise prices without scaring folks away. Pricing power provides an “operating leverage” that, in simple terms, means a company like Ford can make more money than it did previously on every vehicle it sells.
Ford has traditionally had some nice pricing power with its hot-selling F-150 pickup truck. But TrueCar forecasters are saying that car companies are going to enjoy even broader pricing power than in years past.
Combine that pricing power with forecasts for higher sales – some industry experts are predicting new car sales could match or exceed previous peaks in the 17 million range – and you’re talking about a bullish year for the auto sector.
The “catalysts” are there in the form of a cheap gasoline prices and a surging U.S. economy.
U.S. Growth Will Be Better Than Expected
We all know what’s been happening with energy prices. We’ve talked about the big slide in crude (and the money to be made there) in several recent Private Briefing reports.
And we’ve also talked to you about the strong economy.
But that’s worth drilling into a bit more…
A brand-new forecast by Kiplinger’s magazine calls for global growth to average 3.2% in the New Year – not bad, given the headwinds some regions are facing.
The U.S. economy is expected to grow at a 3% pace or better in 2015. Like the auto-sales numbers, that’s the best annual growth rate since 2005 – up from an expected 2.2% this year.
Wages are rising, giving U.S. families more buying power. And falling food and energy prices – coupled with the lowest household debt-to-income ratio since 2002 – gives households more to spend.
Businesses will do their part, increasing spending on plants and equipment by an average of about 7%, up from 5% in 2014.
“We’re in a boomlet here in the U.S.,” Bob Baur, chief global economist for Principal Global Investors, told Kiplinger’s.
And many consumers have been delaying a car purchase. According to Michael A. Robinson, our resident tech expert and editor of Radical Technology Profits, the average car on the road today is 11.4 years old.
“By tech standards that’s ancient history – and technology is a relevant point of discussion with autos these days,” Michael told me. “With cars more than a year or two old, we’re talking no backup cameras, no in-dash infotainment systems, no collision-avoidance sensors, self-parking features, Bluetooth, or integrated GPS. That becomes an additional incentive to buy a new car or truck.”
Analysts right now have a $22 high-water estimate on Ford. I’m using that “high” estimate because I believe some dour comments have been holding down that company’s share price of late. A $22 target price computes to a 43% gain from recent levels. And with the recent 3.3% dividend, you’ll be well-paid to wait
— William Patalon III
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Source: Money Morning