Ford Has the Green Light for Growth

With more than 5,400 stocks to choose from, the universe of investment possibilities is enormous, so looking for stocks based on what you already know and own might be a path to pursue.

Motley Fool CAPS, the 180,000-member-driven investor community that translates informed opinion into stock ratings of one to fives, helps you focus your attention by providing you with a personalized "Stock of the Day." Using its supercomputer, it looks at stocks currently in your active pick list and then scans stocks picked by highly rated players with lists similar to yours as well as industries in which you currently have active picks, and targets areas in which you already have an interest.

By pairing up the opinions of some of the top investors in the CAPS community, CAPS provides you with a handful of companies on which to begin your own due diligence and research.

Buy what you know
No doubt based on my having weighed in on a number of automotive component makers like Goodyear Tire & Rubber (NASDAQ: GT  ) , alt-fuel engine maker Fuel Systems Solutions (NASDAQ: FSYS  ) , and battery maker Exide Technologies (NASDAQOTH: XIDEQ  ) , all of which I've rated to outperform the broad indexes, the CAPS supercomputer thought I also might be interested in automaker Ford (NYSE: F  ) . It was one of five "Stocks of the Day" it offered up for my consideration this week.

With auto sales looking more robust than they have in years, carmakers may indeed be good investments, but just remember, as smart as the CAPS algorithm may be, it's still just an algorithm. So be sure to look before you leap on any of its suggestions.

Ford snapshot

Industry

Automobiles

Sector

Consumer Discretionary

Market Cap

$47.8 billion

Revenues (TTM)

$132.4 billion

1-Year Stock Return

18.7%

Return on Investment

15.8%

Estimated 5-Year EPS Growth

5.3%

Dividend & Yield

$0.20/1.6%

Recent Price

$12.76

CAPS Rating

****

Source: FinViz.com

In my sights
Industry analysts are expecting automakers to exceed 15 million units on a seasonally adjusted basis for the second consecutive month. November marked the first time since early 2008 they had sold so many vehicles, and if Ford, Toyota (NYSE: TM  ) , Chrysler, and Honda (NYSE: HMC  ) can push a few more cars off the lots before the end of the year, the industry is close enough to exceed 16 million units for the first time since December 2007.

Not surprisingly, General Motors (NYSE: GM  ) has been a lagging component of the overall industry recovery. Its November sales figures pushed it to an all-time low in market share of just 16.4%, but with inventories far exceeding those of its rivals -- 139 days compared to the industry's 91 day average -- analysts expect it will unleash a torrent of promotional activity to move cars and light-duty trucks off the lots. It could become the month's big gainer, perhaps at the expense of Ford.

While month-to-month changes shouldn't affect stock prices, don't be surprised if they do. Any weakness ought to be considered a buying opportunity. Unlike its one-time government-owned rival, Ford has been a relative picture of health. The fact that GM is forced to discount its vehicles shows just how strong the Blue Oval is. It may sell fewer vehicles, but its margins ought to hold up just fine.

Stuck in traffic overseas
Europe remains a strategic problem for the company, but it is for everyone else, too. Still, Ford expects to lose $1.5 billion on the continent, a 50% increase from previous estimates, which is a huge amount of money for an industry that remains fragile despite recent showings of strength. The automaker responded by announcing that three plants will close down. Perhaps more importantly, at least for morale, Alan Mulally -- the man who steered Ford through the financial crisis -- will stay at the helm until 2014.

And while I'm not a big fan of alt-fuel vehicles, particularly electric ones like GM's Volt or Tesla's (NASDAQ: TSLA  ) Roadster, Ford's C-Max hybrid is proving popular, becoming the fastest-selling hybrid ever at launch, selling three times faster than the combined launch sales of Toyota Prius and Honda Insight in 2000.

The stock trades at less than three times its earnings and almost nine times estimated profits. And though its enterprise value does go for a lofty 28 times free cash flow, I believe it still has open road before it before we start seeing red lights appear. But let me know in the comments section below whether you agree Ford still has the ability to get your engines running.

No buzz kill here
Ford has been performing incredibly well as a company over the past few years -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt. But Ford's stock seems stuck in neutral. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Simply click here to get instant access to this premium report.


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  • Report this Comment On January 01, 2013, at 1:19 PM, aparso wrote:

    I own F and Exide and see a chance to make back what I had paid for them....Time will tell...

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