Is Ford a Bad Investment?

"I'm Alan. I'm from Ford and I'm ready to take care of your car needs."

These were the first words we heard out of Ford (NYSE: F  ) CEO Alan Mulally's mouth as he slipped on a red Ford hat and strode to the podium at Tuesday's Washington Auto Show press conference.

As I sat in the audience, I smirked a little, thinking the line sounded too close to the often-dangerous: "I'm from the government and I'm here to help."

But by the time I'd listened to Mulally's speech, checked out the Ford cars on display, talked to fellow Fools, and done further research, my smirk vanished.

Seven reasons my smirk vanished
Focus on the blue oval: With this mantra, Mulally stressed his company's renewed focus on its three American brands: Ford, Lincoln, and Mercury. This has meant divesting itself of Land Rover, Jaguar, and Aston Martin, reducing its stake in Mazda, and seeking the sale of Volvo. Adding focus and cash is a very good thing.

Quality is finally job one: According to Consumer Reports (my go-to source for car reliability), Ford is "the only Detroit automaker with world-class reliability." Forty-six out of 51 Ford, Mercury, and Lincoln models rate average or better for reliability. In fact, the four-cylinder Ford Fusion and the Mercury Milan rank higher than Honda's (NYSE: HMC  ) Accord or Toyota's (NYSE: TM  ) Camry. That's an absolutely amazing leap from "Fix or Repair Daily."

Best in class: Ford has the audacious goal of being best in class for every vehicle it makes. That includes factors ranging from quality to value to fuel efficiency. I already showed you the strides in quality. Here's another fun fact: The Ford Fusion hybrid gets 41 miles per gallon in the city, eight better than the Camry hybrid (the Fusion also wins by two mpg on the highway).

Profit: Sure, we can nitpick the reasons (starting with the Cash for Clunkers boost), but Ford actually made a profit in 2009.

Bankruptcy ain't such an advantage: Mulally was asked whether Ford is at a disadvantage vs. GM and Chrysler, which used bankruptcy filings to lessen their debt obligations. He acknowledged that Ford has a ton of debt to pay back (as well as billions to settle up health care for retired employees), but said that overall, staying out of bankruptcy is a net good.

Looking at another industry, I tend to agree that the strong get stronger. Would you rather be Wells Fargo (NYSE: WFC  ) and JPMorgan Chase (NYSE: JPM  ) right now or Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) ?

Market share: As proof of the strong getting stronger, Mulally mentioned that Ford has gained market share in 14 out of the last 15 months. Lead, follow, or get out of the way, eh?

Didn't take money: Ford did all this without direct government assistance. My conclusion is that they had an ace (Mulally) up their sleeve.

One reason for caution
Ford isn't as cheap as its risk warrants. Its market capitalization of $36 billion is roughly half of when it last peaked in the 1999 bubble times. Half-off is usually a good thing, but when it's off of a bubble price on a capital-intensive turnaround company in an increasingly globally competitive market, I don't necessarily salivate.

It's been a great 600+% ride for folks who bought at last year's bottom, but buying Ford at today's prices seems a bit late to the party. My friends at our Motley Fool Stock Advisor service may disagree. They recommended the stock back in November. Of course, the price I'm looking at now is up more than 25% from where Ford stock sat when they recommended it.

Two takeaways
From a consumer standpoint, I agree with my fellow Honda devotee Matt Argersinger: I will definitely take a look at Ford when I'm looking for my next car.

From an investing standpoint, I'm not quite a Taurus (get it, a Ford bull?), but as long as Mulally is running the assembly line, I'll be watching, hoping for a dip in the road that leads to a cheaper buy-in price.

What are your thoughts on Ford? Good investment? Bad investment? Let's discuss in the comments section below.

Anand Chokkavelu owns shares of Citigroup and Toyota. You can follow him on Twitter. Ford Motor is a Motley Fool Stock Advisor pick. The Fool has a disclosure policy.


Read/Post Comments (34) | Recommend This Article (69)

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 29, 2010, at 4:43 PM, clay8989 wrote:

    I think too many people want to compare Ford debt to GM No-debt and question Fords future. Yes, Mullally did run up the company debt load, but he used it to create a huge pipline full of new technologies for Ford's product line. The Fusion and Taurus are just the tip of the iceburg as far as showcasing new Ford innovations. Right now Ford engineers are developing 2 patents for every one from GM, et all.

    I think the real question is what value do you assign the Fords technology pipeline. If you think of Ford in the same way you would a drug manufacturer with a huge supply of new drugs coming to market and assign a future cash revenue value to Fords technology pipeline, IMHO you will find Ford's debt is minor and that as their new technologies come to market, they will continue to increase market share.

    I personally, can't wait for the new F-150 with the eco-boost engine to come out. I think it will be a major game changer in the market.

  • Report this Comment On January 29, 2010, at 4:46 PM, karlditt wrote:

    How can an auto company be better positioned. Toyota in the tank, Honda now facing a major recall, GM and Chrysler lacking consumer confidence. Ford has great management, superior products and they will not fail.

    My target is $15 within a year.

  • Report this Comment On January 29, 2010, at 4:51 PM, johmsen wrote:

    Lets hope Ford beats all of them--an American car, good looking and besides I just bought stock after David said it was a best buy.I think the stock will go up at least 6 dollars.

  • Report this Comment On January 29, 2010, at 5:09 PM, feelingsfoolish wrote:

    So after three of the most tumultuous financial years since the Depression, Ford's share price has gained 50% (around $8 at the end of '07, back to $8 last August after bouncing off $2 this time a year ago) then the share prices drops $.57 after they declare their first PROFIT in 5 years? What could be better, but then the market reacts like this?

    I'm holding onto my shares. They may go down for awhile, but so did Apple's a year or so ago....

  • Report this Comment On January 29, 2010, at 6:11 PM, imntacrook wrote:

    I bought a Ford Edge in 2007, first Ford I've ever bought and I LOVE it! I bought the stock at 11.63, sorry it took so long but it will still pay off nicely.

  • Report this Comment On January 29, 2010, at 6:36 PM, JoeybBorn2X wrote:

    Great article! I have been watching Ford stock closely, since June 2009. It has been on a nice run. Ford seems to have many things going for it right now. They seem to have upgraded the quality of their products. They didn't have to take any bailout money. Chrysler and GM are a mess. Toyota and Honda are having recall issues. The press/media seem to love Ford. I am still a bit leary of the auto industry as a whole as far as an investment. I'm not sure how long Ford can sustain sales when so many folks continue to be out of work. Honda and Toyota will not be down for long. If you're already in, sweet. Hold. Too late for me to jump in now. Made in USA!

  • Report this Comment On January 29, 2010, at 7:38 PM, Varchild2008 wrote:

    If you are not a FORD BULL then you WOULD NOT BE:

    "I'll be watching, hoping for a dip in the road that leads to a cheaper buy-in price."

    It is obvious you ARE a FORD bull....

    However, it is absolutely warranted to be a bit cautious this year as this does not so far look like a strong car sales year. Janaury could be at least a 5% decline year over year to as much as a 10% decline year over year in retail sales.

    Whether January signals poor automotive consumer spending for the rest of the year remains to be seen.

    Of course, as long as we have a Communist for President....caution is definitely warranted.

  • Report this Comment On January 29, 2010, at 7:38 PM, deeandjay100 wrote:

    Being a F-150 owner, I like the fact that they have given me a quality truck over the years, and owning the company only makes me feel better. But after today dip, might just have to buy some more.

    Definitely see 5 more dollars coming.

  • Report this Comment On January 29, 2010, at 8:24 PM, mix206 wrote:

    I bought Ford back when it was $2 a share.. and Im still buying at todays prices. I like to see a dip in the price because I can just buy that much more. Working in the auto industry I know that Chrysler is done, GM makes inferior vehicles that have too many electrical problems so who wants to own a GM, besides they have a piss poor business/financial strategy. Toyota is a great car, but this recent recall hurts them and can only help Ford. Ford will be the #1 US vehicle for a long time and with a brilliant CFO this stock might be able to hit $20 by 2011. Im stickin with it!

  • Report this Comment On January 29, 2010, at 8:52 PM, TopAustrianFool wrote:

    "I am still a bit leary of the auto industry as a whole as far as an investment."

    I agree, how could you not? When Auto industry does well everyone is all over them, from unions to govt to environmentalist. When they are in bad shape govt props the bad companies and does not allow the market to come to a profitable bottom. Nice run but F will to at around $16/share and that's it. It will be another MSFT.

  • Report this Comment On January 30, 2010, at 12:05 AM, bbst wrote:

    I've always owned Ford cars as did my father and grandfather. I still have 3 Fords setting in my garage today, '65 Mustang, '08 Mustang GT, & '09 Escape. The Mustang GT & Escape have never been back to the dealership, except for oil changes. They are just like my '65 Mustang "Built Ford Tough". I would love to shake Alan Mulally hand, my 401K took a big hit in 2008, I bought 7300 shares of Ford stock in April at $4.24 and I'm kicking myself in the ass for not buying more. Go Ford, "Stimulus free since 1903".

  • Report this Comment On January 30, 2010, at 9:14 AM, vark62 wrote:

    I purchased a 2010 SUV, the first one, own stock in the company, I think its a good purchase price now at what ever price its selling for, made a bundle on its stock years ago, before this economy went south but the price now of 11.00 or 12.00 is still a supre buy yet.

  • Report this Comment On January 30, 2010, at 9:31 AM, catoismymotor wrote:

    In my home as a kid my dad's opinion of Ford was the following: F.O.R.D. = Found On Road, Dead. He had a string of Fords that failed him in the seventies and early eighties.

    I want F to be the best automaker out there. With Toyota and Honda, both historically strong names, facing monumental recalls Ford is bound to get a second look from more buyers than ever. That should result in increased sales.

    I want the stock to do well for those of you that have purchased them. I'll be cheering you on. But for me there are still far too many factors, politically, economically and otherwise that can serve to cripple the industry.

  • Report this Comment On January 30, 2010, at 6:01 PM, JustMee01 wrote:

    Ford was an excellent speculative investment.

    Ford shortterm, is probably going to be a pretty average investment. The question is the long term. Mulally has the ducks in a row, and business execution is very, very sharp. They think outside the box as a management team, and they aren't afraid to pull the trigger. They raised equity to fudn the VEBA distribution, used the TALF to their benefit, and gradually reestablished their access to the credit markets. Their bonds have rallied from 20 cents on the dollar to 80 cents on the dollar they last time I checked, and they've paid down a portion of their senior secured to loosen covenants. All this was accomplished in a horrible year for the credit markets. Did I forget to tell you that they gained market share while ENHANCING cash per transaction during Q3 and Q4? Yep, they made more $$$ per car during Cash4Clunkers, when everyone else was pumping incentives up. Why? Their premium vehicles (Fusion hybrid, Taurus, and Lincoln MKS) were selling at sticker and rolling off the lot loaded. All that during the worst auto sales year in decades.

    The next step for Ford will be to continue their progress. They need to continue the momentum of Fusion and Taurus with their new launches. 2010 brings the Fiesta, which is selling spectacularly well overseas, followed by the new F-150 Superduty, the new Focus, and the new Explorer, which becomes a crossover on the Taurus chassis. If they can maintain product momentum, that positive cash flow can be used to repair the balance sheet. They do have $30+B in debt, but they have over $20B in cash, and they forecast positive cash flow for 2010 and 2011. Look for another tender offer and/or more convertible issuances to fund that debt reduction.

    Ford CAN be a good investment opportunity, but they must continue to execute, and the bar has been raised. They just posted a rock solid quarter, and surprise full year profit. The result from Mr. Market? Selling... I see things flat from here, with the potential to get better if Ford continues its business momentum.

  • Report this Comment On January 30, 2010, at 10:07 PM, grendeth wrote:

    If they can control the UAW & continue to make excellent produts, they can only get better. The heavy debt that they have is a concern & I hope they can somehow manage it.

  • Report this Comment On January 30, 2010, at 10:09 PM, grendeth wrote:

    I also want to add, they (the American automakers) have to put more emphasis on growing in Asia. With more than half of the world's population in Asia and with greater earning power, people will want cars. Take a look at China, they are number 1 now if auto consumption.

    Speaking from experience from Thailand, it appears that the Japanese have a tremendous strong hold in Asia which Ford and GM needs to break and gain ground.

  • Report this Comment On January 31, 2010, at 10:58 AM, TMFEditorsDesk wrote:

    @JustMee01,

    Enjoyed your analysis.

    -Anand (TMFBomb)

  • Report this Comment On January 31, 2010, at 7:16 PM, scs660 wrote:

    Everyone should be warned about Ford's reliability. their "Car of the Year" Fusion is not all that it appears to be. Expect the transmission to fail at some point on these. As this car has been a huge seller the cost of repair will certainly hurt the company.

  • Report this Comment On January 31, 2010, at 11:42 PM, madmilker wrote:

    No.

  • Report this Comment On February 01, 2010, at 1:07 AM, treyhaislip wrote:

    I have a Ford Fusion and absolutely love it! I get better gas mileage than the Camry and the Accord. All of my family members drive Toyotas-but I will take my American Car Ride over a Japanese drive. I think Ford is on the right track.

  • Report this Comment On February 01, 2010, at 9:01 AM, TMFMarlowe wrote:

    JustMee01, I think you're dead-on. The most recent guidance from management was pretty clear: While much progress has been made, this trajectory is unlikely to be sustained, and they have lots of work to do yet. I think that's a fair take. There are lots of reasons to be optimistic, and things look quite promising, but the stock may not move a whole lot for a while.

    Great article, Anand. I wish I'd been able to get to DC for this.

    John Rosevear

  • Report this Comment On February 01, 2010, at 3:59 PM, langco1 wrote:

    ford over $5 a share is overpriced.car sales continue to decline with no change in sight...

  • Report this Comment On February 02, 2010, at 10:04 AM, mikecart1 wrote:

    Ford is still a lousy company simply because it is American.

  • Report this Comment On February 02, 2010, at 10:13 AM, NEMnyWtch wrote:

    Great article, and I fully agree. I knew this guy was going to be successful at re-building the brand when he challenged us to "Come on in and kick the tires!" CEOs make or brake both a company and it's stock in my experience. I would not be surprised to see Ford hit $20 by the end of this year. Foolishly bullish on Ford! :)

  • Report this Comment On February 02, 2010, at 8:08 PM, deeandjay100 wrote:

    a lousy company? best selling truck year after year after year. If thats what a lousy american auto company is going for, then so be it.get tired of hearing this continuos rhetoric about american quality. Wouldnt think of any other truck!

  • Report this Comment On February 03, 2010, at 2:17 AM, baldheadeddork wrote:

    @JustMee01:

    Excellent analysis.

    One minor point: F jumped 21% in the first six trading days of 2010 for no discernable reason. (Their December sales numbers didn't support that kind of run.) I think the sell off since it hit that peak on January 11 has a lot more to do with profit taking than any verdict on Ford's performance for the immediate future.

  • Report this Comment On February 04, 2010, at 1:43 PM, doughdude wrote:

    I agree with karlditt, I am hoping for $15 by the end of the year ($20 would be nicer!!). I think americans have had a taste of what europeans have lived with for sometime now, high gas prices! Ford is bringing over some of the european turbo-charging technology, and the Coyote engine coming out soon will deliver 400 HP at 30 MPG highway, and hopefully the quality that the company has been building on lately. Exactly what the consumers want, and will be a big revenue generator for sometime to come. Is GM still betting on the Volt?

  • Report this Comment On February 04, 2010, at 5:20 PM, Sandhillguy wrote:

    Unsaid in all of this is that F has to negotiate labor contracts with its competitor! This is an outrageous conflict of interest situation. The UAW should be decertified at Ford in favor of a Ford-only union.

  • Report this Comment On February 05, 2010, at 1:07 PM, vark62 wrote:

    Owned a 1966 Ford Fairlane for years, sold it an this year purchased a 2010 Explorer four wheel drive, the first one ever, love it, an the price was a bit steep but it may be my last new purchase, Age has caught up with me, 66. the stock should come if we all live long enough..

  • Report this Comment On February 05, 2010, at 1:09 PM, bluffguy wrote:

    Ford has done a great job, but the financial turn around is still questionable due to the overall economy and industry problems. Right now they are the least ugly girl at the dance.

  • Report this Comment On February 05, 2010, at 2:18 PM, RaiddinnRZ wrote:

    As the great Warren Buffett said, when a good manager meets a bad business, it is the reputation of the business that remains intact.

    The auto manufacturing industry suffers from huge levels of competition from everywhere, and it is getting worse as more and more countries start trying to move into international markets.

    The more car makers there are, the more margins are going to be squeezed across the board.

    Let's not all forget when Ford borrowed 5 billion just so it could pay it all out in a one time dividend, saddling the company with a long term debt burden for no operational benefit. Last I checked, dividends are supposed to be paid out of FCF, not borrowings. They wanted to raise confidence with the dividend, they certainly didn't raise mine.

    I wouldn't wager money on it, but I would hazard a guess that Mulaly oversaw that. Personally, I wouldn't trust the guy farther than I could throw him, even if that wasn't pulled under his watch (iirc it was circa 2005 for people that want to look this up).

    Additionally, while Ford does have quite a large share of the "buy American ONLY" crew, it has disappointed a lot of people that have an open mind when it comes to car purchases.

    Let's not forget that Ford has a LONG history of being very nearly the worst automaker in the world. Who is going to guarantee that everyone at all levels of management have made the turnaround from these days? The CEO? These are union workers we are talking about here, the middle managers are probably still the same guys that have been in those posts for the last 50 years, for the most part.

    Can you teach an old dog new tricks? I wouldn't bet my money on it, especially not when it comes to Ford.

    Again, invoking Warren Buffett, "If you wouldn't want to own a business for 10 years, you shouldn't own it for 10 minutes" and to paraphrase him yet again "You should be looking for CONSISTENCY in results over 5 year periods at least". All Ford is consistent at is being a really bad company.

    Bad company, bad industry, questionable leadership, heavy union influence, long history of poor quality and slow reaction times, highly questionable shareholder treatment.

    You have better odds at Vegas.

    Somebody might make money off this company, but this company certainly is not one of those companies that are anything remotely close to good investments. It certainly wont be me that gets rich off this company.

    How much did Ford pay for these companies it is now selling, btw? Far more than it is selling them for? Where is that new income going to go from the sales? To pay the interest payments on its tremendous debt burden? Was there anything but losses under Ford ownership? No?

    Warren Buffett probably has not EVER analyzed this company for investment purposes, and probably never will.

    I am sorry, I just can't quit coming up with bad things to say about Ford. I don't even dislike them that much, I just think they are very very very far from what Fools should consider "investment grade".

  • Report this Comment On February 05, 2010, at 2:22 PM, RaiddinnRZ wrote:

    Oh and by the way, how is Ford supposed to increase its market share by SELLING brands?

    We should be expecting the company's sales to shrink, rather than increase in the near future.

  • Report this Comment On February 05, 2010, at 2:44 PM, Pandorabelle wrote:

    You may not get rich on Ford, but you can certainly make at least 50% a year by shorting it.

    It is doubtful that it will fall below 10.00 a share any time soon---unless Obama does something (else) really stupid.

  • Report this Comment On February 05, 2010, at 3:18 PM, nctrader08 wrote:

    If the market causes Ford (F) to drop back to say $7again for some foolish reason, I'll get back in like did in the fall of 2009. I wasn't close enough attention to the peak early this year, but did cash out around $12.

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