Ford Focus Roof
Ford Focus Roof

Ford Motor Company, a Stock Analysis for November 2010 - Drive Your Profits Higher

At one time FORD stood for Found on the Road Dead.  These days, Ford is doing quite well thank you.  The Ford Motor Company is leaving Chevy and Chrysler in the rearview mirror.  Ford's stock price reflects this.

 

 

Ford Motor Company had tremendous stock appreciation over the last year.  Their stock is gone from $7.00 a share to $14.23 a share for a total return of $103.29%.  Ford just surprised analysts with better-than-expected results for the quarter ending September 2010.  Ford reported its sixth straight quarter of profits and that its net income rose 68%.  Bloomberg reports that Ford is one year ahead of schedule in their debt reduction program.  They also paid $4.055 billion in back dividend payments to preferred stock holders and union retirees.  This clears two legal hurdles for Ford to resume its dividends on common stock.  Based on repayments and cash generation, Bloomberg estimates that Ford shall be able to resume a five cents a share dividend in 2012.  Most importantly, as Ford's revenue goes up and their debts go down, this shall act as a supercharger on Ford's profits.  This will have a dramatic positive effect on share prices.

 

From the New York Times, Alan R. Mulally, July 23, 2010:

"Ford's current strength stems from what was a literal bet-the-company decision in 2006 to borrow $23.6 billion, putting even the company's fabled blue logo up as collateral. That money helped Ford move more quickly than General Motors or Chrysler to bring out new lines of more fuel-efficient vehicles, and, more crucially, provided a cash cushion when the car market tanked along with the economy in late 2008. Ford also shifted its strategy to focus on its core brands and has sold off luxury brands, including Jaguar and Land Rover to the Tata Group of India for $2.3 billion in 2009. In March 2010, Ford reached an agreement to sell its Volvo subsidiary to a Chinese conglomerate."

 

David Adelman, an analyst at Morgan Stanley was very positive on Ford Motor Company in an interview with Bloomberg.  Morgan Stanley added Ford to their "Best Ideas List".  David sees North American vehicle sales going from 11.4 million in 2010 to 14 million in 2011 and 15 million in 2012.  Ford should get more than its fair share of this market increase.  They see a price target of $20 a share and Ford is currently at $14 per share.  This would be a profit of over 42%.  David states that in the next five years Ford shall produce a free cash flow of over 70% of its current value.  Finally, he expects Ford to get an improved credit rating that would lower their expenses further.

 

Ford's stock price is at a great value point.  As of November 2, 2010, Ford only trades at a P/E of 8.58.  The historic mean S&P 500 price to earnings ratio is 16.37.  Ford's share price could double and it is only a little above the historic mean.  Also consider, that P/E ratios are mathematically looking backwards in time and data.  When a company like Ford has dramatically improving revenue and rapidly decreasing debt, investors can justify a much higher P/E ratio than even the historic mean.  These are factors that have driven many technology companies' stock prices through the roof.  The profits on Ford can therefore more than double in the next year or two.  That is something that even a Mustang Cobra sports car fan can get exhilarated over.

 

"What is worse than owning a Yugo? – Owning two Yugos.

 

What information is contained in each new Yugo owner's manual? – The bus timetable.

 

What's the difference between a Yugo and a golf ball? – You can drive a golf ball more than 200 yards." - from The Mammoth Book of Jokes, edited by Geoff Tibballs

 

About the Author

I am an experienced and successful investor of 2 1/2 decades.  I want to help you to become a successful investor too.  Visit Mark Elliot Investments for more information.


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