6 Reasons to Buy Ford Now

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Looking for a good stock to buy today? You could do a lot worse than to consider Ford (NYSE: F  ) . Over the past few years, this iconic American company has transformed itself from a wrecked has-been to a focused, disciplined, and profitable leader of the global auto business.

Ford's turnaround is already one for the business history books. But in some ways, the good part is just beginning -- though challenges remain. Here are six reasons to take a good look at Ford's stock, along with a few concerns to keep in mind as you do.

Reason No. 1: Ford's cheap
Historically, auto companies have traded at about 10 times earnings. That's a reasonable multiple, maybe even a little cheap at a moment (like now) when a company's profits are solid and the economy is on the upswing. As I write this, Ford's trading at about 7.7 times earnings. Even with Ford's ongoing challenges (more on those in a moment), and even assuming that this year's earnings won't be up over 2011's, there's considerable upside -- and even a modest dividend.

Reason No. 2: The economy's improving in Ford-friendly ways
Automakers are cyclical stocks, and cyclical stock prices tend to follow the economy's swings. And while there's still a way to go, things are finally looking up on the economic front: Unemployment claims fell unexpectedly last week. That follows on a surprisingly favorable report for January -- a report that sent Ford's stock surging more than 4% last Friday. Ford's end-to-end product strength and improving reputation leave it well positioned to benefit as more consumers start shopping for new cars.

Reason No. 3: Ford's expanding in emerging markets
The top five best-selling cars in Russia? Two Ladas, two low-cost Korean products, and one surprise -- the Ford Focus. Ford makes the Focus (the same acclaimed Focus that was introduced here last year) locally, in a big plant near St. Petersburg. Russia's auto market is still relatively small, but Ford is already well positioned -- just as it is in India. Meanwhile, after a late start, the Blue Oval is investing heavily in China, with an eye toward reaping big profits in Asia by mid-decade.

Reason No. 4: Ford's a green leader
(NYSE: TM  ) is known as the world's leader in hybrid vehicles, but Ford's not far behind. A hybrid version of its popular Fusion sedan has been a steady seller, and a plug-in version is coming later this year. Meanwhile, an all-electric version of the Focus that compares well with Nissan's (OTC: NSANY.PK) acclaimed Leaf is on its way to dealers -- and back in the gas-burning world, its EcoBoost series of advanced turbocharged engines is improving the fuel economy of everything from small cars to big pickups.

Reason No. 5: Ford's outpacing GM
General Motors
(NYSE: GM  ) is once again the world's largest-selling automaker, at least for the moment. But its product line, particularly in the U.S., is still somewhat hit-or-miss -- a legacy of the company's spiral into bankruptcy, which sent product-development efforts into underfunded disarray. GM's back on track and making progress, but Ford's product overhaul is essentially complete -- leaving the Blue Oval better positioned to withstand the post-tsunami resurgence of Toyota and Honda (NYSE: HMC  ) with competitive products in nearly all segments.

Reason No. 6: A deep executive bench
Ford's ace CFO, Lewis Booth, announced his retirement on Thursday, as did Global Product Development Chief Derrick Kuzak. That's the guy who brought Ford's balance sheet under control and the guy who drove the "One Ford" product strategy that turned the company around -- gone. That's bad, isn't it? Not at all: Ford has been preparing for these departures for some time, and their capable successors -- Controller Bob Shanks and VP of Engineering Raj Nair -- should have seamless transitions. While CEO Alan Mulally isn't planning leaving anytime soon, I expect that his eventual transition will be just as seamless, thanks to Ford's still-deep executive bench.

There are plenty of other reasons to consider buying Ford. The company's debt has fallen to untroubling levels, it has lots of cash on hand, a credit boost to investment-grade status is likely later this year, the new Fusion looks like a winner ... the list could go on for a while, and I encourage you to add a comment below with any I haven't yet mentioned.

But before you buy, keep in mind ...
That long list doesn't mean Ford has no challenges ahead. Overseas operations, particularly in Europe (but also in Brazil) will continue to weigh on earnings for some time -- though Ford is making progress with most.

Also, Ford's strategy of adding premium features to bread-and-butter models to command premium pricing may not be working quite as planned, as sales of the Focus and Fiesta are lagging those of some rival cars that really aren't quite as nice. Price adjustments may be necessary as the year goes on -- and those won't help margins.

But there's a lot to like about the Blue Oval right now, and while I already own Ford and have for a while, I've also backed up my recommendation with a hearty thumbs-up in Motley Fool CAPS.

Finally, Ford's long-awaited dividend will be back in March, but you don't have to wait to put the power of reinvested dividends to work in your portfolio. In a special new report, Motley Fool analysts identify "11 Rock-Solid Dividend Stocks," all great additions to a long-term investor's portfolio. This report is completely free for Fool readers -- get instant access.

Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors, as well as creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (7) | Recommend This Article (33)

Comments from our Foolish Readers

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  • Report this Comment On February 11, 2012, at 11:22 AM, spawn44 wrote:

    You pretty much nailed it. I would add Ford has done a tremendous job in turning people's perception of the company around. Younger people are buying Ford's who would not have thought of doing so several years ago. That image turnaround will accellerate when Ford brings Lincoln up to level of Cadillac and Lexus.

  • Report this Comment On February 11, 2012, at 11:58 AM, 5forfighting wrote:

    I would add the fact that Ford did not take government bail out money to your list as well.

  • Report this Comment On February 11, 2012, at 2:22 PM, Teacherman1 wrote:

    I like them and have owned the stock in the past, but would like them even better at about $10.

    May not get that low again, but maybe they will on a "schitzo" market dip when Greece finally defaults.

    I drive a Ford, and have for the past few years. Never had to do anything but normal service, and finally replace a battery.

    JMO and worth exactly what I am charging for it.

  • Report this Comment On February 11, 2012, at 5:02 PM, Edeskimo wrote:

    Ford is definitely on my radar and is a strong buy under $11 and okay buy at $12. It is pretty fairly valued all things considered at the moment and the best strategy may be to sell puts to build a position.

    The one thing they really need to do is revitalize the Lincoln brand. Its name is still worth something but the cars need a facelift and need to be differentiated from the line of Ford vehicles. Minor aesthetic changes and leather seats is not enough. If they can execute it would push Ford up to a $18-20 stock and further strengthen the brand image.

    It will also help if they correct the issues with sync which has tanked them on JD Power ratings for relatively minor issues.

  • Report this Comment On February 12, 2012, at 4:41 PM, BFatConservative wrote:

    I see Ford being successful, but I think I differ with the timeline that most adhere to. Ford is making incremental changes that is turning the large ship on to the correct route. A lot of these changes won't hit the margins (eg worldwide products using the same core components) for at least another year or so. On top of that, you already mentioned the negative to break-even earnings for overseas units. Other factors are the continued de-leveraging, pension funding, and the return of foreign rivals to somewhat health.

    These factors will keep the share price somewhat modest for I would say a couple of years to come. The only true short-term bump will come from the eventual ratings increase that is almost sure to come in the next 6 months or so.

    This isn't a problem since foolish behavior is for the long-term - I just think it's important to temper expectations for the meanwhile.

  • Report this Comment On February 13, 2012, at 7:28 AM, TMFMarlowe wrote:

    @BFatConservative: Everything you say is true and I agree. But I think the near-term case is a little better than you say, *if* the US economy continues to pick up and consumer spending rises -- that alone will lift Ford's profits (and margins) some, and probably its stock price too.

    But that said, I do agree -- Fools should look at this as a 3-5 year holding with considerably more upside than a typical old-industrial dividend stock, not a quick double.

    Thanks for reading.

    John Rosevear

  • Report this Comment On August 13, 2012, at 6:23 PM, DD999 wrote:

    responding to spawn 44 : So you think F isnt at the cadillac level ? I warned my boss before he bought the sedan deville..... Too late...... , frankly it is a POS that just blew up @ 55K. But The lincoln mark V111 that has 185K miles, is still as SMOOTH as Butter. But the Consumer reviews of Both cars Show the reality. regarding GM : They sold 33-35 MILLION cars & trucks{ that were all included in a Class action suit} that Noone seems to know about. Now 33-35 MILLION Buyers of GM products knew they had a POS lemon, but very few of them even knew that they had won a paltry sum for theyre Blown motors....... I have owned 250 vehicles in my life, & every GM product i bought { i Was a hardheaded kid} was a Total POS. Dollar for DollarThe Cadillacks were Never even in The Same Ballpark as the Lincoln line. Do yourselves a favor { Before you Buy} test drive a Cadillack, Then test Drive a lincoln. & Do yourself a favor & look up "Gm DEXCOOL Classaction lawsuit", it included 33-35 Million Cars & Trucks. Thats a reality, that i shared with GM owners,{in mid 2000 because apparently GM didnt} while My 1991 Lincoln Mark viii was still Cruising the Roads of California, they were wondering why GMs DEXCOOL ate the insides of theyre motors up.

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