Buy Ford and Sell Toyota Now!
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Sometimes world events have more to do with providing sound stock advice than studying fundamentals like P/E ratios.That being said, here's the low down on what's going on with Sino-Japan relations, and how Ford (NYSE: F) stands to benefit greatly from these problems while Toyota (NYSE: TM) stands to lose.
If you are a news junkie, you've probably heard that China and Japan are more than just bickering over a couple of small islands between the two countries. Both countries believe the islands belong to them. If you read about it, it's almost impossible to take this issue seriously because it seems so insignificant: but it’s not.
While it’s true that the islands are tiny and not worth much economically to either country, both countries are in a stalemate over what to do with them. Since WW2, and even before, China and Japan have had a love/hate relationship (a lot of hate). Japan invaded China several times, brutally; the Chinese have never fully forgiven them because they are completely unsatisfied with Japan's lack of a sincere apology.
China is sick and tired of getting bullied by Japan. I read Chinese news, in Chinese, know many people here, and was in Japan just last week; that’s why I can safely say that this is a big deal. China is a very nationalistic country and a lot of pride is at stake. Ditto for Japan. I don't think the islands are a big deal for the populace of either country, but it's all about what these islands represent. The citizens of both countries don’t want to see their governments back down, show weakness, and embarrass their nation. China is the rising superpower in the East, and Japan doesn't want to grant them that.
As for auto consumption, China, the world's largest car market as of 2010, is hammering Japanese car makers like Toyota. Chinese are buying American, German, and Korean cars instead of Japanese cars. An illustration of this came last month, when Ford reported a YOY 35% increase in sales to the Chinese mainland, while Toyota experienced a 49% drop during the same period. Ford sold a personal record 59,570 vehicles in China just last month.
The Chinese are a proud and unified country. Their local social media channels are all telling people not to buy Japanese products, especially big purchases like cars. I've read that many Chinese are suddenly embarrassed and even feel unsafe driving Japanese cars. Although all non-Japanese car manufacturers benefit from this flare up, Ford seems to be doing the best while Toyota seems to have been hit the hardest.
This is all pretty recent, but not brand new news. I do, however, believe that this issue is not yet fully priced into the stock prices. The majority of Ford shareholders are American, and I don't believe the news is doing a good enough job explaining the severity of the situation.
I've been living in China for the past 10 years and I'm convinced that it's a bigger deal than the media is making it out to be. Even if the island dispute comes to a close, the Chinese consumers will be on a roll with anti-Japan sentiment and continue to punish them economically until China gets a major apology. It's incredible to see the Chinese stick together for something like this. I strongly believe this will continue into the foreseeable future.
Check out my blog for more info on China Tech Stocks and international investing.
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Fool blogger Andrew Best does not own any shares in the companies mentioned in this entry.The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.