Ford Stock Will Soar if Two Things Are Fixed

Later this month Ford (NYSE: F  ) will be announcing its first-quarter earnings, and I expect good things. In fact, the first quarter should shape up to be a great one for cumulative sales. The Escape and the Explorer have set record sales in previous months and don't look to be slowing down. The Fusion is selling so fast that dealers can't keep it on their lots, and plant capacity is overwhelmed trying produce enough of the sedan. I suppose that's a good problem to have, considering nearly a decade ago Ford – like General Motors – could hardly give vehicles away. But there are two serious road bumps for Ford investors that could easily derail Ford's stock price from increasing in the near future. Let's take a look and see what we can expect.

Europe again?
If you're like me, you have to be tired of hearing the doom and gloom surrounding Europe's markets. Unfortunately as they say – the night is darkest right before dawn. That seems to hold true with Europe, as Ford expects to lose closer to $2 billion this year before cost-cutting measures begin to subdue the losses. If you think that's a ridiculous amount of money to subtract off the bottom line, you're right. That's part of the reason – while everything else is going well – that Ford's stock seems stuck in neutral after a decent rally through January.

Fear not, I think this is the time to jump in and buy Ford's stock. I have no doubt that Ford can and will fix this problem. Consider that Ford faced a much worse situation here in America while losing $30 billion between 2006 and 2008. That's not a typo: $30 billion. All the sudden $2 billion doesn't seem so bad. Also consider the timeline in which Ford was able to return to profitability in 2009 – far ahead of schedule.

What you need to watch for in Ford's first-quarter release is the amount lost in Europe. I have a bad feeling it could exceed $500 million, and if it does expect to hear more doom and gloom. I am hopeful that this year's success with the very profitable F-Series, as well as a surge in China, will be enough to help mitigate those Europe losses. On to the second must-fix item.

Lincoln
Oh, Lincoln, how I loathe you so far. You managed to get outsold by the Mustang alone in 2012. You managed to be doubled in sales by the Escape. And I won't even dig into how you compare to Focus sales globally – it's embarrassing. Investors need the Lincoln to be successful for Ford's revenues and profit growth to be successful. Ford needs a luxury line, and needs it to be successful now. These are incremental sales we're talking about, as Lincoln vehicles don't compete with the Fusion, Focus, or others. Here's what you should expect for Lincoln sales in the first quarter – the Lincoln MKZ launch was a total flop. It wasted advertising during the Super Bowl since it couldn't deliver vehicles to dealers as promised – causing canceled orders and headaches.

That said, Lincoln sales will be extremely important to watch in the second quarter. We need to see a strong sales increase for the MKZ to give investors an idea whether the Lincoln brand can be a success, or if we need to be hesitant with our Ford investment. Ford needs the Lincoln brand to be successful – period.

You can expect the losses in Europe, whether smaller or larger than expected, to inflict volatility on the stock price. Be knowledgeable and you'll be able to profit now or add to a position for future profits. Ford is here to stay and will do well in the future – just get in at a good price. I'm still very comfy at around $13 per share, are you?

Worried about Ford?
If you're concerned that Ford's turnaround has run its course, relax -- there's good reason to think that the Blue Oval still has big growth opportunities ahead. We've outlined those opportunities in detail, in the Fool's premium Ford research service. If you're looking for some freshly updated guidance to Ford's prospects in coming years, you've come to the right place -- click here to get started now.


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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 April 10, 2013, at 4:27 PM, Safirka wrote:

    I appreciate the fact that you are talking about the near future. But even in the near future, investors will be wondering about how big China will get in the car market. Ford has, I believe, good business relationships in China. Will that shield it from harm?

  • Report this Comment On April 10, 2013, at 4:44 PM, chrisausten wrote:

    "Ford needs the Lincoln brand to be successful"....If that's true, then Ford is in deep s**t. I have yet to find one person who would want to be caught dead in any of the new Lincolns because of their god awful looks. A lot of those who have recently bought Lincolns are trading them in for Cadillacs...the MKZ is currently the most traded in vehicle at Cadillac dealerships. Whats more, Lincoln cannot be fixed with a few styling tweaks...the damage done by the Lincoln Design Studio goes far deeper than that. The only way to fix Lincoln is a complete and drastic redesign of all sheet metal from the frame up as well as totally new interiors....in short, make them look like Lincolns again....but before they can do that they must replace Mr. Wolff in the design studio....otherwise, it's all for naught.

  • Report this Comment On April 10, 2013, at 5:48 PM, fordalltheway wrote:

    All I have to say to you chrisausten, beauty is in the eye of the beholder, I just bought a Lincoln navigator and we love it would not trade it for any thing GM or Chrysler makes. Traded our 2011 navigator in on it, it had 236,231 miles on it with out nothing done except tires and a brake job, love it. Go Ford. Go Lincoln

  • Report this Comment On April 10, 2013, at 6:21 PM, TMFTwoCoins wrote:

    @Safirka -- The increase in China will slightly help shield from losses, but Ford just doesn't have the sales volume there to make it up -- yet. The best way Ford can shield from Europe losses is with its finance division. That holds most of fords $100 billion in debts by lending loans to consumers and taking a profit -- $1.7 billion in 2012. If sales increase, so do loans, that could help offset Europe the most.

    @Fordalltheway / chisausten -- Ford won't fail without Lincoln, the stock just won't soar like it would if Lincoln is revived. Incremental sales are HUGE for the bottom line. Time will tell, I'm very curious to see how the MKZ recovers in the second quarter.

  • Report this Comment On April 10, 2013, at 6:52 PM, ggreen1794 wrote:

    A wise man once said:"You can sell a young man's car to an old man but you can't sell an old man's car to a young man".

    Lincoln has become an "Old man's" car. Cadillac is a young mans car. Lincoln needs to to add a coupe and convertible. Possibly even a roadster. Increase performance. Make that 600 hp mustang motor available in the sporty models.

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