Ford (NYSE:F) Stock: A New Chance to Get On Board

Writing in April 2009, when Thoughtsworththinking.net was in its infancy, I argued the investment case for Ford (NYSE:F) at $3.25 a share, based largely on fundamentals of good management and improved quality.  With the stock now trading over $12 a share (enjoying a 5% bounce today from an upgrade by Barclays Capital1 ), perhaps that was beginners luck, but at the end of the day my qualitative observations were on target.

The shares are nevertheless down from their April 26, 2010 peak of $14.57, raising the question of whether now is a good time to add Ford positions.  I think it is.

Right now, there are lots of fuzzy reasons that make the market nervous about Ford.  After such huge gains, it’s natural to be worried about a “hangover” effect.  Then there are double dip fears, the return of General Motors, and bad numbers in Europe.2

But there are also reasons to believe Ford will stay on track and eventually return to the April peak:

  • Less vulnerability to reduced sales than luxury brands if tax cuts for U.S. households earning over $250,000 are reduced;
  • Continuation of huge sales gains in Asia outweighing lagging European markets;3
  • Greater traction everywhere because of continued higher quality;
  • Lower corporate debt expenses due to a strengthening corporate credit rating.
  • The shares already are trading at a P/E of 8.33, near the low end of it’s historical band, so the shares could appreciate significantly even with modest progress that’s consistent.

Ford has also moved forward on alternative energy vehicles and environmentally friendly manufacturing facilities,4 generating important political favor in the U.S., while green-leader Toyota has been tainted by its safety scandal.

So while the opportunity to make the massive profits that those who jumped into Ford when the U.S. auto industry was on life support has passed, just because an opportunity is not perfect does not mean it’s not good.  There’s a good case that Ford around $12.50 is an opportunity (though it might be worth it to watch for dips after the bounce from the Barclays upgrade fades) for those willing to wait for the storm to pass.

Disclosure: The author is long on Ford (F) as of the original publication date of this post.  The author does not hold a securities position in General Motors (not currently a publicly traded company) or Toyota (TM).  The information provided in this post does not constitute professional investment advice, and should only be used in consonance with all available information, including the opinion of a professional adviser, to make an investment decision.

  1. See http://www.marketwatch.com/story/ford-shares-jump-5-on-analyst-upgrade-2010-09-16 []
  2. See http://www.bloomberg.com/news/2010-09-16/fiat-ford-toyota-lead-fifth-straight-monthly-drop-in-european-car-sales.html. []
  3. See http://www.industryweek.com/articles/fords_sales_in_china_india_up_37_22685.aspx. []
  4. See http://www.cleantechblog.com/2010/08/ford-focus-electric-cars-from-new-green.html []

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  1 comment for “Ford (NYSE:F) Stock: A New Chance to Get On Board

  1. Michael Otto
    September 17, 2010 at 10:11 am

    REGARDING FORD–FOCUS ON THE COST REDUCTION SIDE OF THE COMPANY. COST OF GOODS SOLD HAS BEEN REDUCED FROM OVER 100% OF SALES AT ONE TIME TO NOW 85% OF SALES. LESS PLANTS, MORE VEHICLES PER PLANT AND RUNNING ALL PLANTS WITH THREE SHIFTS IS THE KEY. ALSO 15 PLATFORMS RATHER THAN 25, 80% COMMON PARTS WORLDWIDE RATHER THAN 20%, COMMON TOOLING AT EACH PLANT PER VEHICLE, GRADUAL MOVE OF PRODUCTION FROM HIGH COST COUNTRIES SUCH AS THE USA TO MEXICO, GERMANY AND BELGIUM TO CROATIA, MORE PRODUCT IN INDIA WITH EXPORTS TARGETED TO EUROPE, AND THE TOTAL COST REDUCTIONS AMOUNT TO MEGA-BILLIONS. FINALLY THE SAARS FOR THE USA IS EXPECTED TO RISE TO 13.6 MILLION IN 2011, A 17% INCREASE OVER 2010. IF FORD’S SALES RISE 18% WITH SOLID INCREASES IN F-150S, TAURUS, AND EXPLORER, EXPECT THE COMPANY’S NEXT AFTER TAX TO EXCEED $10.0 BILLION IN 2011. COST REDUCTION WORLDWIDE COMBINED WITH SALES INCREASES IN THE USA, BRAZIL, INDIA, CHINA AND CANADA WILL DRIVE PROFITS TO POSSIBLE RECORD LEVELS IN 2011.

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