Talk Me Out of Buying This Stock

This company lost $2.46 a share in the fourth quarter of 2008. Its shares closed at less than $2 on Thursday. My fellow Fool Matt Koppenheffer thinks it's the worst stock for 2009.

So why can't I shake the feeling that Ford (NYSE: F  ) could be an intriguing opportunity?

Dude, you're crazy
Look, I know the whole auto industry is in straits that redefine the meaning of the word "dire." Everybody knows where General Motors (NYSE: GM  ) and Chrysler are right now, and the automakers' problems are global -- even mighty Toyota (NYSE: TM  ) is burning cash and feeling unprecedented pain.

Key auto suppliers are teetering on the edge: Ford spinoff Visteon (NYSE: VC  ) , which remains one of Ford's biggest suppliers, is contemplating bankruptcy, while other Tier 1 suppliers like Johnson Controls and Lear (NYSE: LEA  ) are scrambling to restructure while they still can.

But I can't stop looking at Ford. I think the legendary automaker might just survive -- without a trip to bankruptcy court. And if it does, it's a steal at current prices.

The hypnotic allure of the blue oval
Here's the case: Ford hasn't (yet) taken any bailout money; if nothing else, that's been a great brand-building decision. It's mortgaged to the hilt, but it still has money in the bank. It's also got ex-Boeing (NYSE: BA  ) whiz Alan Mulally running the place. In my opinion (and I'm not the only one), he might be the best CEO in America not named Buffett.

Even better, Consumer Reports recently declared Ford's quality on par with Toyota and Honda (NYSE: HMC  ) . For a Detroit automaker, that's like finding the Holy Grail after decades of questing (but without the Knights Who Say "Ni").

Most importantly, Ford's products are generating buzz. The new hybrid version of the Fusion sedan is posting eye-popping (and more to the point: hybrid-Camry-trouncing) MPG numbers, the little Fiesta is winning award after award in Europe (and is due here in a year -- what was that about no good Detroit small cars?), and the refreshed F-150 truck is getting a warm reception despite the icy market -- good news for Ford's sales leader.

But ...
"So what?" you say. "Its balance sheet is still a disaster. Its debt load is beyond brutal -- it's surreal. It lost a record $14.6 billion for the year and burnt through more than $21 billion in cash reserves. Ford Motor Credit, its financing company, is yet another bank trainwreck waiting to happen." True. But all of those points I made a paragraph above suggest this: Ford will continue to sell cars and trucks, even while the economy stinks.

Ford's stock is priced for failure -- at this point, it's essentially an option on what the market sees as a slim hope of recovery without a trip through bankruptcy court. Ford itself says it's hoping to break even in 2011 -- and that's the optimistic case. And maybe the common stock isn't the way to take a position here -- bonds or convertible preferreds might be the way to go instead.

But Ford will keep selling cars and trucks. If it does that, I just can't see it failing. Deutsche Bank at least seems to agree. And if the company won't fail, that cheap option is worth picking up, isn't it? Or am I nuts?

Why I might be nuts
This is one of those cases where my ability to look at the situation objectively is probably – OK, almost definitely -- clouded. I've written before about how our brain wiring can make us prone to certain kinds of bad investing decisions. I think being able to recognize one's own biases is a key to sustained investment success.

In this case, my lifelong enthusiasm for cars is probably causing confirmation bias. It's hard for me to imagine a world without Ford in it. I might be weighting the evidence in favor of its survival too heavily.

Furthermore, I've owned auto stocks before, with (mostly) great success. At various times in the last 20 years, I've made good money buying Chrysler, GM, or Ford shares at the bottom of their respective cycles, and holding them for a couple of years. The last time I owned Ford, I bought at $21 and sold at $30 -- and got a decent dividend along the way. That history is hard for me to forget.

Yes, that was a long time ago, but still. They're cyclical stocks, this is one heck of a cyclical bottom, and I can't help reading this situation as a "screaming opportunity."

What's your opinion?
Am I on to something? Is this worth risking a small chunk of my portfolio? Or am I completely crazy, focusing on a sentimental favorite in a world full of better opportunities? Leave a comment and let me know what you think.

Read more about the Big Three and other firms on the brink:

Want some value-priced investing ideas far less speculative than Ford? See the Motley Fool Inside Value team's best ideas for new money right now with a free 30-day trial.

Fool contributor John Rosevear has no position in the companies mentioned, and maybe that's for the best. Try any of our Foolish newsletters free for 30 days. The Fool's disclosure policy is hoping that Mr. Mulally's minions will offer the Fiesta with Ford's new 1.6 liter EcoBoost engine. Vroom!


Read/Post Comments (31) | Recommend This Article (48)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 30, 2009, at 4:49 PM, aputtman wrote:

    I like your reasoning why not put out some money you can afford to lose?

    Most investments are good, you just have to wait them out.

  • Report this Comment On January 30, 2009, at 4:54 PM, PennyPincher12 wrote:

    There are no called strikes in investing. You don't HAVE to buy it.

    Why gamble on this when you can make assuredly safe investments?

    There was another TMF writer who posted his number one holding was B of A last year (in his retirement account, nonetheless), and this was when it was in the 20's.

    Stick with what you're sure about.

  • Report this Comment On January 30, 2009, at 4:54 PM, piggytentoes wrote:

    I agree with your comments regarding Ford. Bought 1,000 shares a while back at $1.50. Worst case -- I'm out $1,500.

  • Report this Comment On January 30, 2009, at 5:02 PM, TMFMarlowe wrote:

    PennyPincher12: Why? Because if they really pull off a turnaround, it's a ten-bagger.

    Also because... it's Ford.

    Thanks for stopping by.

    John Rosevear

  • Report this Comment On January 30, 2009, at 5:11 PM, tees911t wrote:

    Quality is the thing I keep coming back to. Ford, as maligned in the media and debt-laden as it is, still sells quality cars. If even half of the positive news about new products ends up being true I think this is a winner. Bought 500 @ 2.80 and plan to hold forever. Worst comes to worst I'm out as much as piggyten. It's an amount I can stomach.

  • Report this Comment On January 30, 2009, at 5:12 PM, 4JTM wrote:

    Just for conversation,lets say Mr Mullaly really knows something all the pundits and naysayers dont. I agree, the new Fords including Taurus look great. The key is for people to get some faith back in the future, coupled with sane credit lending for those who qualify and buy Ford Products and keep the ball rolling ln the U.S.A.

  • Report this Comment On January 30, 2009, at 5:36 PM, olee100 wrote:

    I've been suffering the same "horns of the dilemma." I love my Ford - have a great local dealership. Plus, my son just bought a new one with good Ford financing.

  • Report this Comment On January 30, 2009, at 5:39 PM, pentangela wrote:

    I don't think there is much doubt that Ford will survive. The problem is they can wipe out all the common holders with a chapter 11 and never miss a beat in the manufacturing and sales process.

  • Report this Comment On January 30, 2009, at 5:45 PM, tees911t wrote:

    Understood pentangela, but probably not the best PR move right now. No reason to beat down the shareholders any further.

  • Report this Comment On January 30, 2009, at 6:08 PM, jwort97 wrote:

    I think the quality of their cars will shine through in the end. I have been buying on the dips under $2.00 a share and plan to keep doing it until I am in for $2k or so. Then I will tuck it away for a rainy day in 2015 or so when the price hits $45.00 or so. I would be willing to bet anyone on here has blown more than $2k on dumber things than Ford stock. Why not roll the dice???

  • Report this Comment On January 30, 2009, at 6:22 PM, dslbill wrote:

    I'm with jwort97. Still lamenting over the fact that I never bought Chrysler when it was in the like situation, back when Iaccoca took over. Went from below 3 to over 70. What a profit that would have been. Think I'll buy about 1000 if it hits $1.50 maybe more. Hell I've lost more than that at a gambling joint in a nite. Gonna roll the dice. :-) LOL Ford is so much better than when I worked there 20 yrs. ago.

    Go Mullay Go.

  • Report this Comment On January 30, 2009, at 6:33 PM, Tastylunch wrote:

    first- of all you asked to be talked out of it so instinctively you know there is something wrong with it

    second- historical research has shown that over 90% of stocks that fall that far never recover their losses. How often do you hear of ten-baggers from beat to crap stocks vs good companies that are growing?

    Third- just because Ford will likely survive it doesn't mean the current common shareholder equity will. Just ask shareholders of United Airlines.

    That's why the balance sheet and debt matter. Yes they will sell trucks and cars, but will they sell enough to avoid restructuring/bankruptcy?

    Fourth-turning down a handout is not necessarily a good strategy either. If GM takes the handout and restructures effectively they will have the benefit over Ford. Again look at airlines Delta was punished for trying to pay their obligations while United was rewarded by unloading theirs.

    If you want to risk your money that's your call, but I'd play small and take a double if I got one instead of waiting for a ten-bagger.

    Personally if I were interested in Ford, I'd rather take my chances on Ford bonds or preferreds than common stock.

  • Report this Comment On January 30, 2009, at 6:54 PM, tafabatm37 wrote:

    Hey guys and girls, I have been arround here in good

    old America for 71 years, buying all brands of American autos. That means Ford, Chrysler and GM.

    They have all been pretty good, and sometimes all

    have produced dogs. However, todays products are

    all as good or better as any of the foreign makes. Is

    Ford a safe buy now? Yes, Yes and so is GM. Have

    to wait a bit and see about Chrysler. Rember WWII

    when our auto industry helped win the war! Would we

    want to depend on China, Japan, Mexico if our real

    economy goes south? These industries are basic to

    America. Support them.

  • Report this Comment On January 30, 2009, at 7:02 PM, diditbad100 wrote:

    Sounds like you are in love with a name synonomous with apple pie and baseball---whoops! --sorry---I think that is Chevrolet!

    I love Harley motorcycles and wish there were more American made goods, but I sold my stock in HOG.

    1. Decline in stock prices equals decline in pension fund.

    2. Union labor --I wish this wasn't a negative, but with other automakers assembling cars with less than 1/2 the labor costs it is a reality.

    3. Any company that is losing market share to a top competitor (Toyota) is not a buy.

    4. Huge debt

    5. Have you read the headlines lately? layoffs and the fear of being out of work will result in less sales for at least the next two or three years,

    6. Bankruptcy is not likely, it is almost a certainty.

    7. Ninety nine times out of a hundred stocks that have fallen to this level continue to zero, why not invest that little bit of money into something that at least has a chance of surviving!

  • Report this Comment On January 30, 2009, at 7:23 PM, Curtis21 wrote:

    At this point there is not reason to put little Billy's college fund in Ford, save that for the conservative investments, I gambled on Ford because of What they are doing, not How they are doing.

    As the article mentioned, Ford's product quality is very quickly catching up that of the foreign competitors. When (not if) the economy comes back, Ford is in a very good spot to capture more than their usual market share.

    Call me an optimist, but I have a feeling the economic slump is good for media ratings so they might not be the first to tell us that things are looking up.

    I like rolling the dice, (no free booze like Vegas) but if car sales come back, the little that I set aside in Ford and Visteon will certainly pay off...

  • Report this Comment On January 30, 2009, at 7:39 PM, stan8331 wrote:

    Ford is making good products that will sell. I think there's a very decent chance it can survive without bankruptcy. Whether it can prosper is a different question. The unions aren't nearly the issue they once were, because they realize the company could very easily cease to exist.

    Retirement obligations are a bigger problem. Best-case scenario, we get some sort of new healthcare system that doesn't involve prices rising at multiples of the rate of inflation.

    I believe there is a way for Ford (or possibly GM) to become a market force once again. There is a level playing field in one area of the car business - virtually all the companies still rely on the old-style dealer system of fleecing the customer for every possible dollar via unnecessary add-ons, arcane financing, sleazy negotiating, etc. We all know how much fun it is to go to a car dealership. I believe ANY company that can figure out a way to make a fixed price, built-to-order system actually work will have the ability to seize huge gains in market share.

    All the car companies have websites where you can go and "build" the exact car you'd like to have. Then you get to go to a dealership and take or leave the cars they happen to have on hand at the time. Of course you can special-order a car, but that's a sure way to get hosed on the price.

    The major foreign companies are unlikely to attempt something like this on a large scale because they have a lot to lose. Guess who doesn't have a lot to lose?! It would have been a huge, unjustifiable risk in the past, but the past is gone and time to figure out a new game-plan is running out. It would require a truly radical shift in culture, but with visionary leadership I believe it might just be possible to make it work. What better way to reward your customers than by making car buying a pleasant experience?

  • Report this Comment On January 30, 2009, at 8:21 PM, profitsplus107 wrote:

    Yes! Stock Up on FORD!! I"m 84 years old and have

    never owned a Ford, but I can visualize the future and

    F is a "Screaming BUY"!!!

    I own 5,000 shares and plan to buy more.

    Mullaly is the key. He has done wonders since his

    arrival and is just getting started. Give him time and

    he will make you RICH!!!!

  • Report this Comment On January 30, 2009, at 10:01 PM, cstrw01 wrote:

    I hate to say it but I often buy just based on the product offered and the CEO- yes the debt scares the heck out of me- but I love what Mulally is doing and what Ford is doing through its global integration.

    They still have some assets to sell off to raise cash that will further stave off bankruptcy, and man are they beggining to make REALLY good cars! I've bought 1000 shares at 2.05 and I'm going to up that to 3 to 5K while prices are under $2.

    I think this is a $10-$12 stock by mid-2012.

  • Report this Comment On January 30, 2009, at 11:51 PM, CaptPaul29 wrote:

    Live in upstate PA where a couple of feet of snow is common. Got home in a raging ice storm the other AM and asked my wife if she was worried. Her reply, "Why would I worry? You're driving an F-150!" Bought my 2nd 1,000 shares the next day.

  • Report this Comment On January 31, 2009, at 12:35 AM, goldenpiggy wrote:

    I'm thinking the same way. Ford these days have extremely well-engineered products that are no longer inferior to Honda or Toyota. Ford's near-term technology roadmap outpaces Honda. Meanwhile, Honda is concentrating on longer-term technology.

    Ford's problem is high labor costs. That has to get addressed. I don't know how, but it has to happen.

    You all know oil will not last long at $42 a barrel. With their all-out effort on hybrids, Ford will overtake Honda as the #2 hybrid automaker when we gawk at $100 a barrel. It will happen.

    I hope the "Buy American" takes root again in all of us. Quality is no longer a reason against Ford. Hell, my Honda Odyssey went through 4 trannies!

    If Ford can survive this year, you're looking at at least a $4 stock. That's double of what it is today. The upside potential sure seems to outweigh the downside potential.

    As always, do your DD and don't bet the farm on any one stock or sector. I will be adding to my position at these prices.

  • Report this Comment On January 31, 2009, at 6:36 AM, oceantraveller wrote:

    Ford will beat them all.

    Even on other countries Ford Focus is gaining on other cars.

    .

  • Report this Comment On January 31, 2009, at 10:47 AM, dw69129 wrote:

    If an EPA estimate of 41 pops your eyes what does 55 pop? I own 2 Honda Civic VX hatchbacks that were only made from 1992 through 1995. Not enough were sold so they were discontinued and reverse engineering began giving us these stupid hybrids with a trunkful of batteries and worse mileage. Both of my VX's have over 200000 miles, have been totally trouble free and will blow the doors off a Fusion any day. With only one battery.

  • Report this Comment On January 31, 2009, at 12:04 PM, TMFMarlowe wrote:

    They'll "blow the doors off a Fusion"... except that they don't come close to meeting modern safety standards (which is the secret to their mileage figures, by the way -- cars are much heavier now because they have to be), don't have as much room inside, and... truly, having owned 4 older Hondas back in the day, I bet they won't come close to blowing the doors off a Fusion hybrid, at least not in a straight line. I don't think even a Civic Si of that vintage could do it.

    Thanks for stopping by.

    John Rosevear

  • Report this Comment On January 31, 2009, at 2:15 PM, PennyPincher12 wrote:

    You're right. If they pull it off it's a ten-bagger.... and if the white ball lands on black 24 it's a thrity-five-bagger.

  • Report this Comment On January 31, 2009, at 4:01 PM, argonaut2009 wrote:

    I went with Cramer's recommendation for Ford Motor Capital Trust II 6.50% Cumulative Convertible Trust Preferred Securities due January 15, 2032 (F-PS) 35%. Currently trading at 9.8. Not sure I fully understand how it works but it seems more solid then the common stock. Can anyone shed some light on this?

    By the way, Automobile magazine March issue features "FORD LIVES" with the new Ford Taurus on the cover. They describe it as shockingly good. That plus the great Fusion Hybrid... I think they are really on the right track.

  • Report this Comment On February 05, 2009, at 8:08 PM, Varchild2008 wrote:

    1 interesting speculative play on FORD is this:

    The DEMOCRATS

    Why?

    Simple: They Regulate Environmental Cafe Standards and I wouldn't put it past the Democrats to try and mandate that Americans must drive a car that meets those standards by 20XX. Should legislation be past that places a mandate...Americans will be stuck having to buy a CAR and an artificial cyclical TOP will happen.

  • Report this Comment On February 05, 2009, at 8:41 PM, Seano67 wrote:

    Ford is ranked #2 in Europe in overall auto sales behind only Volkswagen, so there's no doubt but that they're making some very good cars. But auto sales in Europe are collapsing just as they are here, so whether Ford will be able to hang in there until global economic conditions improve and lines of credit start thawing is anybody's guess.

    It's probably not a bad speculative play, if you are fully aware of the fact that you just might lose that entire investment and can afford to do so. At the very least, you will know that you're investing in a company that is actually making great cars again.

  • Report this Comment On February 06, 2009, at 6:32 AM, funkywizard wrote:

    Though I do see your reasoning here, I think there are better opportunities in cyclicals right now. Mining, shipping and oil are all going through some serious downturns. There are a number of companies with strong balance sheets who are priced as though they'll never make money again, or will go bankrupt. It's insane. When you can get TCK, SLT, GNK, or PDS for such cheap prices, why would I consider something dramatically riskier like F that doesn't have substantially better upside potential?

  • Report this Comment On February 06, 2009, at 10:12 PM, Primalmale wrote:

    Okay, lets look at this way. How many of you play the lottery? How much do you blow on that? Be honest. How much has the lottery given you back? Again, be honest.

    How about a real gamble on real Americana? Yes, Ford. Look at this way......if it pays off you get to wollow in one big "Ha! Ha! I told you so!" moment in your life.

    Even if you purchase 100 shares. Think about what you blow each month on "wants" and not needs in your life.

    Common dude, where's your American spirit?!

  • Report this Comment On March 11, 2009, at 12:27 AM, concretebd wrote:

    Ford will live , so will lear , Ford will adapt to the current problems we all facing in this tough economy, there products will adapt ,wages , all the problems facing Ford and some of there suppliers,people we will need good built cars , parts too .

    Ford will emerge in 3-5 years as the top US car maker!!

  • Report this Comment On January 30, 2013, at 7:09 PM, ghstflame wrote:

    Great pick!

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