Last week's news that auto sales jumped 0.7% in June suggests the economy is gaining strength. Cars aren't cheap. An entry-level vehicle will set you back $20,000 or more, and the average mid-size sedan costs around $36,000. Consumers don't part with that kind of money unless they are confident they will remain gainfully employed. The unemployment rate is as low as it has been in decades, and wages are growing faster than inflation. That's the good news. The bad news for the auto industry is that sales for the first half of this year were the lowest since 2014. But if the economy continues to strengthen and the Federal Reserve cuts interest rates, the second half of this year could be one of the strongest in years. That's why I think it makes sense to take a hard look at Ford (NYSE: F) right now. Currently trading below $11, Ford is a low-cost, low-risk way to play the improving American auto sector. In a moment, I'll explain one way to do that. But first, I'd like to share with you one of the most successful trades I ever made in my life that involved Ford stock. The Trade of a Lifetime Ten years ago, the global economy was in shambles. The stock market had lost half its value, and the unemployment rate spiked to 10%. Comparisons to the Great Depression were being made, when unemployment soared to 25% and the stock market lost 90% of its value. At the same time, car sales plummeted. Like everyone else during the Great Recession of 2008-2009, I wasn't sure if the stock market had bottomed out. But I was certain that our government would not let our domestic auto industry go under. Of the "Big Three" U.S. automakers, I felt Ford was the financially strongest and least likely to go bankrupt. Regardless, its share price fell below $2 as investors panicked. That was my cue to take action. I started buying Ford stock in 1,000 share blocks once it got back above $2. A few weeks later, I owned 10,000 shares of Ford at an average price a little below $2.50. I figured I'd have to wait several years until I could cash in on this investment. Instead, Ford quickly soared above $10 and I sold my shares less than a year after buying them. Turns out, I should have held out a little longer. Within two years, Ford rose above $15. Since then, it has slowly fallen back to about the same price at which I sold it nine years ago. Now, I sense a similar opportunity to profit from Ford. But this time, the way the play it is different. |
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