1 Reason Why Ford's Stock Rally Will Continue

Ford (NYSE: F  ) and General Motors (NYSE: GM  ) have both come a long way since the depths of the recession. Each company took a very different route, but both are now better managed and more profitable. GM has much larger revenues and sells more vehicles globally, yet even with that top-line advantage it lags behind its rival Ford in bottom-line profits. That's because Ford cut costs and improved operating efficiency to bring more dollars of each sale to the bottom line – and it's worked tremendously. That's a large reason for Ford's recent stock rally that saw its 52-week low of $8.82 rocket up to around $15 – but there's more to be excited about.

Goodbye Toyota and Honda
Behold four reasons for Ford's recent success:

Image courtesy of Ford. 

Those four vehicles, from left to right, are the Escape, Fusion, Focus, and Fiesta. Ford has named the combination of these four segments to be the "super segment". Ford is focusing its effort and toward new models because it expects that global growth will be in those segments. Consider that in 2004 the super segment accounted for about 35% of new vehicle sales, but now it's over 50%.

Ford's retail market share of this super segment is up 28% which is a solid gain. Most of that share is at the expense of Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) , which have long dominated these segments with fuel-efficient and valuable vehicles. In 2008, the two leading Japanese auto's accounted for about 36% of the super segment while Ford had 8%. Fast-forward five years and Toyota and Honda now combine for 28%. Ford alone accounts for 13% in the super segment through April sales – on the heels of Toyota's leading position at 15%.

Ford's increased share in the super segment is one of the reasons its stock has rallied, but here's why it will continue. According to Ford, it expects even more growth in the super segment than already seen, driven by baby boomers continuing the trend of downsizing their vehicles. In addition to that, on the opposite end of the generational spectrum, the millennials have been drawn to the Fiesta. Ford hopes to keep luring younger first-time buyers to its brand – creating a loyal, future bloodline.

The bulk of success in the super segment comes from the Fusion and the Escape. Amy Marentic, group marketing manager, Ford global small and medium cars had this to say in a recent press release: "Each of our vehicles in the segment is doing great things for Ford in different ways ... Two-thirds of all buyers shop both the Escape and Fusion when they come to our dealerships, and sales of both are way up."

Escape and Fusion
Consider that since the Explorer in 2004 no Ford vehicle, besides the F-Series, has topped 300,000 in annual U.S. sales. This is the first year in nearly a decade that two additional vehicles could top that mark. Through the first four months of 2013 the Fusion and Escape sold 107,280 and 98,809 units, respectively. In addition to the tremendous sales both vehicles can fetch a lofty price tag with premium options – helping to keep Ford's 11% operating margin in North America. 

Bottom line
As I mentioned earlier, Ford and GM took different approaches between top- and bottom-line progress. Investors would like to see Ford's stock rally continue, and it will rely on the super segment to grow its top-line revenues and the F-Series to continue bringing home strong profits. It looks like both of these trends will continue, and 2013 should be a great ride for Ford investors.

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 Motley 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.

Read/Post Comments (0) | Recommend This Article (2)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2450101, ~/Articles/ArticleHandler.aspx, 9/30/2016 9:32:58 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 12 hours ago Sponsored by:
DOW 18,143.45 -195.79 0.00%
S&P 500 2,151.13 -20.24 0.00%
NASD 5,269.15 -49.39 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2016 4:00 PM
F $11.97 Down -0.12 +0.00%
Ford CAPS Rating: ****
GM $31.48 Down -0.42 +0.00%
General Motors CAPS Rating: ***
HMC $28.83 Down -0.34 +0.00%
Honda Motor CAPS Rating: ****
TM $115.99 Down -1.64 +0.00%
Toyota Motor CAPS Rating: ***