Three companies, each alike in dignity. Or not. Don’t look at the numbers just yet. Instead, consider the following. One of these companies is Japan’s largest automaker and relies heavily on that country for its production and its profit. Another one, although Japanese, produces the bulk of its vehicles overseas. The third company is American and relies very little on Japan for production.
Baseline their stock at Jan 1, 2011. When an earthquake, a tsunami, and an authentic nuclear disaster strike, which of the three end up with the same stock price as the baseline afterwards, and which take a big dive?
You cheated, didn’t you? You looked at the graph and realized that, against all logic and reason, it’s Toyota which has effectively taken no hit to its stock price since January 1. Honda, which is far less reliant on Japan for production of both automobiles and unique parts, is almost fifteen percent down from that base point. Meanwhile, Ford, which competes more effectively against the Japanese in their core areas (small cars, Camcords) than either GM or Chrysler, is also down.
What possible mindset could Wall Street have to believe that Honda has had more bad news this year than Toyota, or that Ford’s had more bad news than either? I’m hoping that some of TTAC’s financial wizards can provide an answer, because the only one I can come up with is that Wall Street believes in some sort of racist theory which describes Japanese people as inscrutable, invicible worker bees who don’t suffer or make mistakes like the rest of us. This would explain why Toyota’s inability to build cars, find parts, or power its plants is seen as a minor bobble while Ford’s so far successful “war on debt” is apparently a big issue. Thoughts?
We’re talking Wall Street here. Words like “logic and reason” have no meaning there.
+1
You beat me to it. This is why I work for a privately held company that isn’t directly subject to the BS of wall street.
“Buy when there’s blood in the streets,”-Baron Rothschild.
Or, when northeast Japan is squeegeed by a tsunami.
There’s logic, but it’s not gonna be seen on this chart or this article. The stock prices take into account lots of other factors like how much cash these companies have on hand, and Toyota has a heck of a lot of cash available to help it ride out the storm. And the Ford shares only ended up worse off because of that huge drop there from particularly bad financial news.
And anyways, chances are that when things smooth over and people in Japan start replacing their cars they’ll be replacing them with Priuses.
Well, there is logic and reason but it has less to do with the fundamentals of the companies in question and more to do with the “the game” of playing the market.
And big investment institutions absolutely do “game” the market.
I will NEVER invest in a market that is absolutely designed to screw the small investor and benefit a small handful of “movers and shakers”.
This would have been a great point / counterpoint article.
My baseline would have been the date of the tsunami. If you backtrack past the date of that event, you have to account for Ford’s financial developments up to that point. Which means that their enormous stock price increase and solid cash flow would have to be weighed in as well.
As for Toyota and Honda, you have to use your judgment. To infer that they are in as good shape now as they were in January 1, 2011, especially compared with their competition, would be optimistic. If you believe that the loss of hundreds of thousands of sales in this business is just a ‘wobble’, I assure you it’s not. Toyota and Honda may actually lose well over a million sales when it’s all said and done and their revenue losses will be well into the billions.
The depth of reorganization needed to make their Tier 2 and Tier 3 suppliers operational is severe. I won’t even go into the logistics of it all. That’s Bertel’s territory. But with a 25% drop in energy capacity in Japan. A level 7 scenario playing out in at the nuclear reactors located near many of these facilities, and a chip shortage that will be hellish for many industries, I am not bullish on either of these two companies.
“My baseline would have been the date of the tsunami”
If you do that, then you miss the essential absurdity of Wall Street’s collective assertion that the gains made between January 1 and March 10 equal the losses between then and now.
Not following your logic here, Jack.
It’s quite clear from the graph that Ford’s stock price increased following the Tsunami before dipping again recently, while Toyota’s and Honda’s fell in the weeks immediately following the Tsunami. Honda fell a second time more recently, but as with Ford some other factor is likely responsible.
If you do it properly to look at the combined impact of Earthquate, Tsunami & Chernobyl-class Nuclear accident, then you start on March 10, 2011.
Since the disasters struck:
Ford is up +6%
GM is down -2%
Toyota is down -13%
Honda is down -16%
Also I wonder what may have caused the big drop in Ford late in January.
Not sure there, but the recent drop might be attributed to a perception that Ford has abandoned previous pricing discipline in the pursuit of volume over profit?
Analysts thought, and Ford let them think it, that the 4Q earning would be good and close to the prior quarters. They were not. So they got crushed. That’s how it works. If Ford wants to fix this there will need to be significantly clearer guidance out of Ford in the future.
Ford had an earnings surprise – and not in a good way – back at the end of January. Their debt is still worrisome, too. How much of it is out at variable rates? If interest rates increase, their fixed expenses go up in accord.
Also, Honda and Toyota appear to have peaked more or less in February, which is about the time that oil prices started to increase (and perhaps that was synchronous with the turmoil in the Middle East?). It looks like F took a bit of a hit from that, too, as the market generally re-evaluated the likely fortunes of automakers for the remainder of 2011.
Then the tsunami hit and we’ve seen some additional slide in Toyota and Honda but not so much in Ford, which has, perhaps, rallied a bit. It looks like the initial judgement of the market was that the disruption would be better for Ford than the Japanese.
The BOJ decided to loosen it’s monetary policy as a reaction to the natural disastor. The resulting devaluation of the yen makes Toyota’s largely japanese manufacturing base more cost competitive. The fact that Honda manufactures more outside of Japan, is actually detrimental to it’s stock price in the case of the yen being devalued. Ford will now have to compete with an even more competitive Toyota.
I was very tempted to buy TM yesterday and cash in quickly on a dead cat bounce. Woulda, shoulda . . .
I don’t know about the Japanese OEM’s, but as far as Ford’s sinking fortunes goes, maybe the financial wizards have been reading TTAC lately and realize that Ford really has a problem due to significant holes in its line up in the years ahead!
What hole?
Since they have or are in the process of synchronizing their American cars with their European cars (Fiesta, Focus and Fusion/Mondeo in 2013) these cars will continue to be updated regularly (since they have huge sales in Europe) and not left to languish as would be the tendency if they were US only. I don`t see the F-150 being left to languish either and the Explorer is new. Edge has had a mid-cycle upgrade and will be all new in years to come.
Lincoln!
Zackman,
As an orthodox contrarian I have to say that while Lincoln isn’t where Ford (or most of us) would want it to be, the still sell more cars than Infiniti. Lincoln is looking for direction and a brand identity but it’s not dead.
QE2 increasing the monetary supply may be interfering with “normal” market behavior.
It will be ending in/near-end-of June.
You may see less of “the teflon market” behavior after that.
I think TM is also seen as stronger than HMC; the diff. between P/E and PEG ratios between the two would suggest that.
Also, the Prius is a great success and the Honda equivalent is very much not.
-> Which would help shore up TM even more, as by the end of June, oil might be at $120/barrel with potentially $5 gas in some areas of the country.
There could be an expectation that the Japanese will arise stronger once they reconfigure their manufacturing to abate future catastrophic events.
Similar to the way when Europe re-industrialized after WWII, their new plants were more advanced than those in the US.
Interesting theory. But their main factories have not been reduced to rubble (as was the case in WWII) so there is no “rebuilding” per se. Energy shortages and some suppliers being knocked out are the key issues.
It’s just more air escaping from the Toyota bubble that never was pumped up to be.
All the car companies share the same suppliers, is Toyota engineering that much better? Ssssss…
DetroitNews did report Moody’s was going to downgraded TM on recent events.
Toyota lost production. They didn’t necessarily lose sales, especially not in Japan. We don’t know how much of the loss of Toyota’s physical plant was covered by insurance. Toyota is big enough that they might self-insure for just about everything, but if not, the long-run consequence could be an insurance paid retooling of Toyota’s manufacturing base. Insurance also plays a role in the demand side. All of those cars that were washed away by the tsunami were insured. Most of the owners survived, and they will replace those cars. Toyota will get a big share of that business, and most of its overseas customers will wait on a supply of new Toyotas.
Honda stock went down because Honda seems to have lost some of its magic touch. Honda still makes good quality cars, but almost everybody else does too, and Honda has lagged in technical innovation and (especially) styling.
Ford’s stock price can be looked at as a market correction from a run-up last year that was the product of irrational exuberance.
“Toyota lost production. They didn’t necessarily lose sales, especially not in Japan.”
Help me understand this statement a little better. If this disaster costs Toyota two million cars, how is that not two million lost sales? It’s not like there were two million Toyotas left unsold last year.
For most auto manufacturers, annual production and annual sales match almost exactly, year after year. Lost production does tend to equal lost sales.
That is nothing compare to GM touching all time low @ $30.10 during the trading day today. I been saying even prior to its IPO that Uncle Sam is putting a lipstick on this pig. As of this date, I still don’t comprehend the notion of all those fancy road shows, and gullible investors actually buying this piece of crap. I love this free market. Some will long this pig & I’m happily shorting it.
Uhhh.. here’s what I see (After all this is Rorschach test right? You see what you want to see). Toyota has a higher stock than Honda or Ford. Ford has a lower price than Toyota or Honda. Then the tsunami comes. Afterwords Toyota’s price goes DOWN, but is still higher than the rest. Honda’s price goes DOWN and Ford (the non tsunami company) goes UP, so that it’s higher than Honda but still lower than Toyota.
The big mystery here is why Honda’s price dropped more as a percentage than Toyota’s drop.
It has to do with institution investors’ expectation of return on the equities. TMC has forward looking P/E 20.88; HMC is 4.80 & whereas F is 8.82. There is a reason why certain common stocks will trade at low P/E whereas growth stocks (better managed corp) tends to have higher multiples.
The analyst usually look at the whole sector and they don’t compare apple to orange.