Ford Motor Company (NYSE:F) routed Wall Street expectations with its second quarter earnings announced today, thanks to a lot of help from record profits in North America. The car maker said net profit for the just-ended quarter was $1.89 billion or $0.47 per share, up by 44% from the year-ago quarter, on revenues of $37.3 billion, easily beating expectations of $0.37 in earnings per share on revenues of $35.34 billion. The vastly improved profit comes as Ford increased its operating margin to 7.2% from 6.6% in last year’s second quarter. Shares of the company rose to a high of $15.00 per share earlier today, up over 3% from its closing price yesterday, before settling down, now trading up by 1.62%. Ford Motor Company (NYSE:F) reported a $2.6 billion profit in North America, up by $157 million from the prior-year quarter and its largest profit in the region ever, offsetting weakness in the South American and European markets. Ford says that the second quarter of the year was its best quarter since 2000. The firm also reiterated its full-year operating profit forecast for the current year, which is in the range of $8.5 billion to $9.5 billion. Just last month, Goldman Sachs Group Inc (NYSE:GS) upgraded its rating on ford to ‘Buy’ from ‘Neutral’, citing the possibility that Ford’s profitability would soar in the upcoming year; we agreed, and also rated Ford’s stock as a buy.
The blowout quarter for Ford Motor Company (NYSE:F) contrasts with the decline in hedge fund interest in the first quarter. By the end of March, a total of 33 of the hedge funds tracked by Insider Monkey were bullish in this stock, down by 12 from one quarter earlier. Moreover, the aggregate value of holdings of hedge funds among those we track which had long positions in Ford at the end of the first quarter fell by 18.98% compared to the previous quarter, to $832.07 million. This loss of investment is amplified by the fact that the stock rose by 4.13% in the first quarter. The smart money was not wrong, as shares declined by 7% during the second quarter, making Ford a much more attractive buying prospect in the third quarter.
Professional investors spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, while their returns have been strong the past two years, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. A portfolio of the 15 most popular small-cap stocks among funds outperformed the S&P500 Total Return Index by 95 basis points per month between 1999 and 2012 in backtesting. The exceptional results of this strategy got even better in forward testing after the strategy went live at the end of August 2012. A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 123.1% and beaten the market by more than 66.5 percentage points since then, and by 4.6 percentage points in the first quarter of this year (see the details).
Insider Monkey also tracks insider purchases or sales of shares as a way to determine the sentiment of insiders in the companies they are involved in. Ford Director John Lechleiter made the most recent purchase of Ford shares on May 14, buying 3,000 shares. Meanwhile, Group Vice President David Schoch sold 14,903 shares on July 2 and General Counsel David Leitch sold 140,000 shares on June 18.
Considering these moves, let’s take a glance at the latest key hedge fund activity regarding Ford Motor Company.
How have hedgies been trading Ford Motor Company (NYSE:F)?
Of the funds tracked by Insider Monkey, Pzena Investment Management, steered by Richard S. Pzena, holds the biggest position in Ford Motor Company (NYSE:F), owning 17.64 million shares for a $284.7 million position in the stock, comprising 1.6% of its 13F portfolio. On Pzena Investment Management’s heels is Capital Growth Management, led by Ken Heebner, holding a $94.1 million position made up of 5.83 million shares; the fund has 2.6% of its 13F portfolio invested in the stock. Some other hedge funds that hold long positions include Phill Gross and Robert Atchinson’s Adage Capital Management, David Harding’s Winton Capital Management, and Gordy Holterman and Derek Dunn’s Overland Advisors.
Since Ford Motor Company (NYSE:F) had a decline in interest from the hedge fund industry, there was a certain group of funds that slashed their positions entirely heading into the second quarter. Kevin Michael Ulrich and Anthony Davis’ Anchorage Advisors dumped the largest investment of all the hedgies watched by Insider Monkey, made up of call options underlying 5.0 million shares, worth about $77.5 million. James Dinan of York Capital Management was right behind this move, as the fund sold off its call options underlying 4.98 million shares, worth about $77.22 million.
While hedge funds were bearish heading into the second quarter (and rightfully so), we’re now putting more stock in the recent analyst upgrade and insider buying on weakness, while we wait to see the latest hedge fund sentiment on the stock in the next weeks. Therefore, we continue to believe Ford is a good stock to buy at the moment.
Disclosure: None
