SEPTEMBER 14, 2019
news. What’s not to love? Who saw this? The feds rolled another dawn raid to net suspects. They followed that with a perp-walk, which led to a news cycle, about UAW leadership. Hum. Why? Both current United Auto Workers president Gary Jones, and past president Dennis Williams, among others, are suspects in an on-going federal probe concerning corruption. Wow.
Flashy news no doubt, however the story behind that is more Ford’s concern–one concern. GM’s now in contract talks with the UAW, and Ford’s up next. GM’s contract with the union ends tonight. Ford’s does not. And?
Ford’s a turnaround story. Labor is but part of that process. What else? California, D.C., China, and Moody’s. They’re at 7 World Trade Center. Did we leave any junk out? How about that Ford’s climbed 23.53%YTD? That’s a turnaround right? Can we keep the dividend? “Junk Squawk. Whatever. FORD. What’s Next.”(Cover photo; Ford’s 2020 GT-500 Shelby Mustang. Citrus Crisp.)
stock news in jumpy markets can induce involuntary spasms. How about this one–“junk bonds.” Is Ford safe? Are those bonds junk? Well, if you say so. And here we go again. On Monday Moddy’s, the rating agency, “financial services and risk management” specialists downgraded Ford corporate bonds to “junk” status. Why? “The Ba1 ratings reflects the considerable operating and market challenges facing Ford, and the weak earnings and cash generation likely as the company pursues a lengthy and costly restructuring plan.” –Moddy’s downgrade report.
Whatever. What Moody’s didn’t bother to mention is that this is not news. Everyone’s known forever that Ford’s restructuring, that takes time, it’s expensive, and sales are down. Translated Moody’s is stating that Ford’s car machine faces “challenges” and their finished vehicles face “competition” in the marketplace. Who’s don’t goddamnit? Simultaneously on Monday Ford lit up the scoreboard with plans to introduce eight electric vehicles in Europe, this Fa King year.
For anyone who missed it, Moody’s is one of the up-standing “rating” agencies who during the financial crisis was manically machine-stamping as “AAA” every pure dog shit HAZMAT “collateralized debt obligation(CDO)” that Wall Street could package.
week ago Friday shares were up over 3%. Why? The story on the street is an institutional rotation out of the nose-to-ass packed consumer staples, utils, and REITS defensive plays, and into the “beaten-down value plays”–like industrials, Ford, and transports. On Monday’s Moody’s news F fell, at one time more than 3%, on the “junk bond” designation. They sent it up from their cozy subbasement home by messenger. Toilets flushed all over the city on the memo.
“Junk” bond status matters in two ways. Borrowing costs increase when your credit is junk, and institutional money usually can’t be parked in anything less than “investment” grade assets.
Karen Finerman is a co-host on CNBC’s “Fast Money.” You can see her everyday. Karen’s smart, and always long, on everything she purports to own. She asks hard questions and says so when she doesn’t know. Nice. And what was Karen’s comment on “junk?” This leaves Ford “dangling” by only one investment grade rating. What did she man? Institutional money. Regulations prevent pension funds, specifically, from owning anything but “investment” grade bonds. She felt Ford’s bonds were only supported as “investment grade” by one remaining agency. Was that true?
Ford Motor Co.(NYSE: F)
paying attention understands that Ford is in turnaround mode. China’s butt-ugly and the sedan’s dead. Ford did sell 350 million Focus models–just sayin’. What does it all mean? It means “challenged” earnings, constrained cash flows, and margins, to some degree. That’s how it works. Do we need Moody’s to know this?
Smart organizations watch what everyone’s saying, and doing. Being cognizant of Ford’s challenges, and investor sentiment, is called wisdom, if you’re an investor. We are, still. And was Karen correct? Is Ford’s debt “dangling?” No. Fitch, and S&P both still say Ford’s debt’s investment grade. Moody’s stands alone in this one. Maybe they’re right, but the street don’t care yo.
Auto industry analysts note that the important “seasonally adjusted selling rate” or “SAAR” reading is now above 17 million, a “very healthy rate.” Trucks are the strongest element. Ford is a truck leader. That includes trucks of all sizes.
the longer term thinking? Here’s a clip from Barron’s; “JPMorgan Asian auto analyst Rebecca Wen noted in a recent research report that half of the car companies she follows missed second-quarter earnings estimates. Still, stocks she covers are up 4% on average since those earnings reports.” Hum.
This includes Ford. Missing EPS estimates yet rising. The article continues: “Will we have a fundamental recovery in [the fourth quarter] as well as 2020?’ asks Wen in her report. “At this juncture, our answer is yes.’ Investors are looking past recent results toward better days next year, Wen says.”-Car stocks have struggled around the globe,” Sept. 9, 2019, Al Root, Barron’s.
The U.S. auto industry as a whole will be hopping hoops for some time. Why? Contract talks with the embattled United Auto Workers(UAW) are as we stated again under way. Labor negotiations are notoriously unpredictable. General Motors needs an agreement now–today. Here’s one hope. Perhaps a framework for an agreement will emerge from those GM/UAW talks, that will allow a smoother process for Ford.
a federal probe is now underway, looking into–right, another “anti-trust” issue. Bullshit. This time the target’s are Ford, GM, BMW, and Volkswagen. Why? The companies agreed to build according to California’s newest emissions standards, rather than the new and less-strict Trump Administration limits. Cars fit for anywhere and streamlined production are the industry’s strategy. Who wants to breath more toxins? Well, Washington. The fun never ends. Meanwhile, we’ll maintain an even strain. collect a 6.38% dividend, and enjoy. Good luck and good investing.
Jam of the Day
“Harder Than You Think.”