Ford: Tomorrow's Monster Stock

Stocks climbing to 10 times their original price are rare breeds -- but they're not impossible to find. Especially when you have Fools for friends. 

The market's best stocks include companies that have risen dozens of times in value by taking advantage of the market's weaknesses. These aren't penny stocks; they're viable companies with sound business prospects that are achieving phenomenal returns. Finding just one or two of these monstrously successful firms can help you establish a winning portfolio.

Stalking the monster
To find tomorrow's winners, we've enlisted the help of more than 180,000 monster trackers at Motley Fool CAPS who have successfully picked stocks that have doubled, tripled, or even quadrupled in price. This week All-Star member manaolana gives us carmaker Ford (NYSE: F  ) as his next monster pick. He made his mark with Teck Resources, which surged 444% after he picked it to outperform the S&P 500, which rose only 21% in the same time frame.

Of course, you shouldn't jump into the breach just because an All-Star stock picker did. Just consider this as a starting point for your own research of extreme buying opportunities.

Ford snapshot

Market Cap $37.6 billion
Revenues, TTM $133 billion
1-Yr. Stock Return 0%
Return on Investment 15.8%
Est. 5-Yr. EPS Growth 7.5%
Dividend & Yield $0.20/2.0%
Recent Price $9.86
CAPS Rating ****


Up on blocks
I'll admit upfront to a bias in favor of Ford for not taking a taking bailout when General Motors (NYSE: GM  ) and Chrysler did, even though it's not completely averse to accepting government money (it took almost $6 billion in government loans to retool its manufacturing plants) and I just bought a brand new F-150 Lariat that's super sweet. But I've been leery of Ford as an investment because the economic cards are stacked against it and other automakers, both here in the U.S. and, more problematically, abroad.

Ford, for example, is losing market share in Europe and it's only able to boost sales through self-registrations, or dealers selling cars to themselves despite not having orders for them. It saw sales slide 29% in August, the largest decline of any carmaker as its market share slid to 6% from 7.7% the month before. Only VW posted growth.

Next year is looking ugly too and there's little hope for a turnaround before 2014 because Europe's politicians can't get a handle on their financial problems. Ford posted $403 million loss last quarter and expects to see it exceed $1 billion for the year, but politicians and unions won't allow plants to be shutdown or workers to be laid off. GM has lost money in Europe for over a decade and posted another $361 million pre-tax loss in the second quarter.

Value is what you get
Here at home things were a bit better as car and light truck sales were up 20% from last year, with Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) topping the list, though they started from a much lower base because of horrendous sales a year ago. Detroit's Big Three had sales north of 10% each, causing annualized sales of new vehicles to climb to 14.52 million in August. Light-vehicle sales are expected to have risen over 9% in September.

With Ford generally recognized as one of the strongest global manufacturers, no doubt because of the financial pain they were willing to endure at the height of the crisis here to get their house in order, they're also generally expected to be the one that will weather the storm in good fashion and come out better on the other end. Some foreign manufacturers like Peugeot have grave concerns swirling around them and perhaps might not survive.

Price is what you pay
Ford, at six times earnings estimates, is slightly more expensive than GM and looks like a downright bargain compared to alt-fuel vehicle maker Tesla (Nasdaq: TSLA  ) at 77 times estimates (another that may find itself in a Peugeot-like position or worse). But with its enterprise value going off at 22 times the free cash flow it generates, Ford stock is not exactly bargain-basement material. Even having lost more than a fifth of its value from recent highs, I'd be hesitant to go all-in here because Europe is still unraveling.

Through no fault of its own Ford is likely to run over a lot more potholes. But let me know in the comments section below if you think it's still in the driver's seat of the American auto industry.

A chance for scary growth
Despite its lower price level the company is still a home-turf favorite and is investing heavily in future growth opportunities. Although I think there are risks investors need to be mindful of, some believe these short-term pressures created an incredible buying opportunity. To cut to the chase, the Motley Fool has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Click here to get instant access to this premium report.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Ford and Tesla. Motley Fool newsletter services have recommended buying shares of General Motors, Ford, and Tesla. Motley Fool newsletter services have recommended creating a synthetic long position in Ford. 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.

Read/Post Comments (2) | Recommend This Article (4)

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 October 01, 2012, at 7:14 PM, Spirit2586 wrote:

    Ford lived on there Beloved F150 for to many years. They let all of the other vehicles they make go to hell. Including Lincoln and most of all Mercury. My main thing that bothers me is the E series vans. They made the E vans for more than 45 years and did nothing to improve them. About 2008 Mercedes starts selling there Sprinter vans and takes about 30% of the van market. And what does Ford do! Four years later and Ford has done NOTHING. I am sure that if Ford had a Sprinter style van to sell Mercedes would not have made any where near a 30% inroad into the van market. Spirit.

  • Report this Comment On October 01, 2012, at 9:20 PM, kbergh wrote:

    Ford is far ahead of GM and Chrysler because they have succeeded in changing the culture of the company. GM and Chrysler (an Italian company now) have only changed at the upper echelons; the middle managment is still bureaucratic and, at least in GM's case, every bit as arrogant as before according to large numbers of its dealers.

    Full disclosure: I am a former GM dealer who owns Volvo dealerships (a company sucked dry by Ford), but continue to hold more than 34 000 Ford shares which I firmly believe are a geat value with substantial upside.

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