Tuesday, June 07, 2005


A reader purchased 1700 NWAC this morning at $6.70. Of course, as an amature, I did not recommend the stock. The reader shows me great respect by buying one of the stocks that I have written about.
The stock is rated a hold by S&P and as I recall, Morningstar, Jim Cramer, guests on CNBC, guest on Kudlow & Company all suggest avoiding the stock. I urge caution. One should not invest in highly indebted companies that are losing multiple dollars per share unless one understands the risk is real. This particular investor owns many other stocks and has already built a nice capital gain in CAL.
Another investor and I had a good conversation about Ford (F) yesterday. This stock is very cheap in terms of price to sales, price to earnings and price to book. The dividend yield is almost 4%. I have been watching the stock for a while and am tempted to buy it for my Mothers account.
There are a number of reasons to consider waiting. Not waiting in a money market but waiting to take profits in other areas before moving into Ford. One reason to wait is detailed in one of the old books by David Dreman. David has studied value stocks extensively. His research shows that one should generally wait at least a year after a major hit in an industry.
The world is preparing for the time when cars will not be fueled by gasoline. Reform bills in congress now will result in higher generation of electricity. Power plants will be built that are designed to run 24/7. The use of gas powered plants--fired up to meed peak demand--will be reduced. Extra power generated at night will be used to charge batteries, fuel cells and to make hydrogen.
The change over will increase the risk for the various players. Ford and GM make their money off vehicles that are classified as trucks. Toyota, Honda, and others have taken market share in smaller vehicles for years. Ford and GM have very high legacy costs. The number repeated often is that $1,500 of every GM car produced goes to pay health care cost for employees and retirees.
There is certainly nothing wrong with nibbling on Ford at less than $10 per share. Patient investors will do well. I suspect the market will make much to do about the "Toyota advantages" as the change over picks up pace. Capital expenditures required will be huge. My guess is the opportunity to buy Ford near the current price will be available one or two years from now.
Business cycle investors have probably moved out of consumer discretionary stocks like Ford and have moved into consumer staples such as Proctor and Gamble. In the last business cycle, Ford and GM did well during the economic expansion phase. Consumer interest rates rose as expected but GM and F offered zero rate financing on over priced vehicles and were successful during what could have been a very rough time.
Recent jumps in real estate values and declines in mortgage rates have unlocked trillions of consumer dollars. Consumers can buy what ever car they want by refinancing their home or taking out an equity line.
No recession in sight; BUY THE BULL!