Ferrari (NYSE:RACE) The Aristocrat of Auto Stocks

Ferrari (NYSE:RACE) The Aristocrat of Auto Stocks

$RACE

The Big Q: Can Ferrari really rally back to $153/share and higher?

The Big A: Shares of Ferrari are participating in this rally and racing higher since bottoming at 93.85 on 27 December and reversing.

The shares gaped up on the open and finished at 111.19 on Wednesday, 9 January in NY, or 2.40% on the day.

Carrying a market cap of $21-B, Ferrari is smaller than many of the industry’s more well-known car makers

General Motors (NYSE:GM), Ford (NYSE:F), and Volkswagen (OTCMKT:VLKAY) are much larger.

Quality beats quantity every time, and Ferrari is the in demand luxury automotive brand world wide.

Ferrari, unlike the GM, F, VW and Fiat-Chrysler all trade are low valuations. Ferrari stock trades at about 30X this year’s earnings, whereas names mentioned trade with single-digit PERs (P/E ratios) even while paying handsome dividends,

Ferrari’s business is very different from the rest.

Ford and General Motors operate on thin margins and rely on mass production, Ferrari operates with high margins and limited production.

Comparatively, Ferrari has gross margins of 52.5% over the past 12 months, whereas Ford and GM publish gross margins of just 16.5% and 19.7%, respectively.

Further, while GM and Ford carry large inventories, Ferrari’s order book is sold out for the year ahead of production.

The late Sergio Marchionne, the former CEO of Ferrari, said in October 2017, Ferrari “happens to make cars, but it makes luxury goods for a select group of people who cherish belonging to an exclusive club for our users. That’s a different argument than making cars. The pricing dynamics are completely different.”

Ferrari is a high-end luxury product with wide margins and intended for a limited wealthy clientele.

As a result, Bank of America/Merrill Lynch is calling it a Top pick in the automotive industry, just as we have been doing since July 2016 when the stock was at 40/share.

In our view, RACE is a very unique asset, with resilient financial performance, extreme high brand value, unique luxury products and consumer status.

The Bank of America/Merril Lynch is using a 150 price target, which is just above 52-week high at 149.85.

Trading Ferrari Stock

18-month chart of Ferrari stock
18-month chart for RACE

Just days before Q-4 Y 2018 started, shares were trading at 142.50. On 24 December the the stock closed at 94.96 off 33% from the highs.

Since then Ferrari stock has bottomed, reversed driving back over 100/share finishing Wednesday at 111.19.

The continuation of the breakout from its downward channel (see the blue lines) is Key, and a break above the resistance at 112.85 opens the way to 120 in here.

The Bulls are now in charge as Ferrari has broken above its 50-Day MA at 107.50 fueling the rally so long as it holds support above Key support at 106.79 the Bulls are seeing 3 the Key technical indicators now Very Bullish and the trend is North.

Short interest is extremely low for RACE with fewer than 1% of shares on loan. This indicates that investors who seek to profit from falling equity prices are not currently targeting RACE.

HeffX-LTN’s overall technical analysis for RACE is Bullish.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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