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Ford's a Buy, With or Without China

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Based on domestic sales results, the pressure auto manufacturers have been under these past few months is hard to fathom. Ford (NYSE: F  ) , General Motors (NYSE: GM  ) , and now even industry darlings Honda (NYSE: HMC  ) and Toyota (NYSE: TM  ) are in the midst of a fairly consistent downward trend. Why? Europe and China, though not necessarily in that order. Unfortunately, the negativity surrounding the global economy has overshadowed what has been a solid first half domestically for the auto industry.

Pointing fingers
Much of the blame has to fall on the shoulders of our friends across the pond. Spain and Greece in particular seem hell-bent on outdoing each other as the world's worst economy. With all that turmoil, it's no wonder Ford's European division lost $149 million in Q1.

But let's not forget the impact China and its consistently slowing economy have had on the auto industry. Ford in particular is lagging in China, no denying that, but CEO Alan Mulally and the team have plans to seize the opportunity the market brings. Ford's plan to jack up global sales by as much as 50% by 2015 is in the works as a $5 billion investment in several new factories in the Far East attest. Add to that plans to introduce as many as 15 new vehicles in China by mid-decade, and it's clear Ford is taking this opportunity seriously. The 8% jump in May auto sales in China was also nice to see. But what investors should be focused on today is that Ford -- along with GM, Honda, and now even Toyota -- is a sound investment opportunity, irrespective of Chinese economic growth.

Right outside
With all the global economic negativity, it'd be easy to forget that things here at home aren't bad, even accounting for the slight drop in factory outputs and lower consumer confidence figures. Ford's recent North American sales results are a testament to a fairly sound domestic marketplace, certainly compared to much of the global economy. Consumer confidence -- and the spending that comes along with it -- had been consistently improving until the recent hiccup. Though employment figures haven't quite caught up with the rest of the U.S. economy, we're certainly not in the same boat as a year or so back.

The primary reason for the upbeat sales expectations is simple: The U.S. consumer is ready, willing, and able to buy new cars.

Yes, Ford's overall profit -- pre- and post-tax -- was down versus Q1 of 2011. But the decline wasn't due strictly to poor operating results. Much of the decrease came from one-time special items (i.e., "accounting stuff"), a higher tax burden this year, and a decent dividend paid out to shareholders. As for Ford's own backyard, North American pretax profits jumped nearly 16% to $2.1 billion, the highest in at least 12 years. And according to, the consistent growth in new car sales in general is expected to keep on rolling right through the summer. Manufacturing levels were up 1% in April, and virtually every automaker has projected better sales results for 2012.

GM is coming off a banner year and a sound Q1 of its own, yet it remains one of the least expensive alternatives in the industry. Trading at a mere 6.34 times earnings, GM doesn't offer shareholders the yields that Ford, Toyota, and Honda do -- 1.9%, 1.6%, and 2.3%, respectively -- but there's a ton of upside potential.

For fans of $120 billion Toyota and its not-always-friendly rival Honda, the recent sell-off has brought both of these industry stalwarts back into play. Toyota looked rather steeply priced after sustaining production problems last year in the aftermath of the tsunami that ravaged the region. But now, at less than 10 times future earnings, Toyota and its 1.6% dividend seem a legitimate investment option. Honda is a mirror image of Toyota in a lot of ways -- both started the year fairly expensive but have come back to reasonable valuations of late -- and at 2.3% has the highest dividend payout of the big boys on major U.S. exchanges.

For the auto industry as a whole, the Chinese economy will continue to play an important role in future growth, and that goes for Ford's future prospects. But if you focus on what is or isn't happening in China and neglect what's going on right in front of us, you're going to miss out on one of the best value opportunities around. For mid- to long-term investors, if Ford isn't already a staple of your portfolio, it should be.

And with a nearly 2% yield, Ford's income-generating potential is nothing to sneeze at. If you like the idea of finding more undervalued growth stocks with some great income potential for your portfolio, take a peek at our special free report: "Secure Your Future With 9 Rock-Solid Dividend Stocks."

Fool contributor Tim Brugger holds no securities positions mentioned in this article. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor and General Motors. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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