Automaker Stocks: One Automaker Wins From The Crisis In Japan
The ongoing crisis in Japan is as heartbreaking as it is devastating. My heart goes out to everyone suffering from the earthquake – tsunami – nuclear threat catastrophe.
By now, you know all about the destruction wreaked by the 9.0 magnitude earthquake. You’ve seen the footage of 30-foot tsunami waves crashing down on coastal villages. And you’re waiting with baited breath (as am I) to see if the Japanese can stabilize the damaged nuclear reactors.
Hollywood writers couldn’t script a more terrifying and suspenseful story. Unfortunately, it’s all too real.
The market’s reaction to this ongoing tragedy is all too predictable.
The major US stock market indices are bouncing all over the place. Shares of Japanese stocks and ETFs are getting hammered. And US government bonds are rising as investors seek the safety of Treasuries.
Clearly we’re in for a lot more volatility in the days and weeks ahead.
In addition to impacting markets, the crisis is also having a big effect on various industries. The earthquake and tsunami have knocked out power to many of Japan’s factories. One industry hit particularly hard is Japan’s automakers.
Japanese car and truck plants had been completely shut down since the earthquake and tsunami hit. A few of them resumed operations at a smattering of plants yesterday. The rest are scheduled to come back online on March 21st.
But it’s not at all clear right now how quickly Japan’s automakers will be able to restart production.
Toyota, Nissan, Honda, Mazda, and Mitsubishi are all struggling to get their factories running again. A shortage of parts, electricity, and workers is making it difficult to get back to business as usual.
And here’s the key…
A prolonged shut down would have a negative impact on the Japanese automakers’ North American factories. One JP Morgan analyst says a production hiatus of just six weeks could disrupt production of 350,000 vehicles. That’s equivalent to one-twelfth of North American vehicle production dependent on Japanese-built parts.
What’s more…
Even a slight disruption to Japanese auto production could give US automakers an opportunity to gain market share. Let’s face it, patience is one quality many American consumers lack. Rather than wait weeks for delivery of a Japanese vehicle, a good number of American consumers will likely buy a car elsewhere.
And the most likely alternatives are models made by American automakers.
If this scenario comes to pass, we should see shares of Ford (F) and General Motors (GM) move higher. Between the two, the one I like best is Ford.
Ford is expected to grow earnings much faster than GM. Analysts are projecting Ford’s earnings to increase by 18% per year… compared to just 10% annually for GM.
As a result, Ford stock is a better bargain at current prices. Right now the shares are trading at a 57% discount to their projected growth rate.
In addition, Ford looks more attractive on a technical basis.
As you can see, Ford is currently trading along the 200-day moving average (the gray line). This important technical indicator has provided strong support for the stock over the past year. Twice the stock has traded down to the 200-day moving average… twice it has bounced off and moved higher.
I fully expect Ford to bounce off the 200-day moving average again! Remember, each time a support level holds, it becomes more likely to hold again in the future.
If you’re looking for a stock with good long-term potential and an attractive short-term setup, Ford is the way to go. But you’ll have to move fast, setups like this one usually bring buyers in very quickly.
Category: Foreign Markets
