- Since September, Ford has rallied by more than 43% as positive earnings results have been fueled by relatively stable consumer buying activity in the automotive sector.
- But in spite of the stock’s prospects for a sustained breakout rally, Ford still looks relatively cheap when it’s compared to the rest of the market.
- In our view, this looks like a classic short-squeeze setup and this is the type of event that could send share prices much higher, very quickly.
Since September 24th, shares of Ford Motor Company (NYSE: F) have rallied by more than 43%. For the company, positive earnings results have been fueled by relatively stable consumer buying activity in the automobile sector (even during the height of the coronavirus pandemic period) and credit metrics within the industry have also seen clear improvements.
As a result, we believe that the automobile sector has been one of the few areas of the market that managed to avoid significant coronavirus-related disruptions over the last few quarters. For these reasons, we expect to see Ford stock successfully break-out above important psychological resistance levels at $10 per share and this is the type of event that could put investors on a solid path toward extended gains in 2021.
Source: Author via Tradingview
In the above chart, we can see that shares of Ford stock are breaking above trendline resistance near $8.90. Interestingly, these structures coincide quite nicely with the stock’s pre-coronavirus highs and we think this makes it much more likely that bearish traders might start to see stop losses tripped if the rally extends much further. In our view, this looks like a classic short-squeeze setup, which means that this is the type of event that could send share prices much higher.
In spite of the stock’s prospects for a sustained breakout rally, Ford still looks relatively cheap when it’s compared to the rest of the market. Ford is currently trading with a price/sales ratio of 0.28x and a forward price/earnings ratio of 8.49x, so we think that there is clear potential for continued upside before bearish analysts would be able to make a credible argument that F is becoming an expensive stock to own.
