Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



This Just In: Deutsche Bank Says It's Time to Buy Ford Motor Company

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our supercomputer tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

Is Ford stock about to head downhill? Photo: Ford Motor

And speaking of the best...
As the Nasdaq and Dow wobble in early trading Friday, one stock showing a pronounced and steady uptrend is Ford (NYSE: F  ) . For this, you can thank the friendly analysts at international megabanker Deutsche Bank, who just upgraded Ford shares to buy, and assigned a $19 price target to boot.

Cited on this morning, Deutsche argues that Ford has strong prospects for sales growth in Europe and China, and that prospects elsewhere could see Ford enjoy "a significant earnings inflection in 2015-2016."

What has Deutsche feeling so confident? In the crucial U.S. auto market, the banker notes that the company's new largely aluminum-bodied F150 pickup truck is turning out to be a lot less expensive to build than formerly thought. Deutsche thinks that switching from steel to aluminum will add at most $800 to the truck's manufacturing cost. Even passed on to consumers in the form of higher prices, this may not hurt sales when you consider the additional savings consumers will enjoy on fuel, thanks to the F150's new, lighter body.

Indeed, according to Deutsche, Ford may be able to charge even higher prices on (and reap bigger profits from) the F150, given that it's currently selling F150s for only about $150 more than comparable General Motors (NYSE: GM  ) Silverado trucks cost (on average). Historically, Ford has charged closer to a $3,000 premium for its trucks. So a reversion to the mean could see Ford commanding much higher prices, and profits, on its wares.

In the analyst's opinion, the time to buy Ford stock is now, before those profits begin to appear on the income statement. But is Deutsche right?

Let's go to the tape
Over the nearly eight years that we've been tracking and recording this analyst's performance, we've seen Deutsche beat the market by about eight percentage points-per-pick on average. That's the good news. The bad news is that Deutsche guesses right on its stock picks only about 51% of the time -- so its advice is a bit of a hit-or-miss. And when it comes to Ford stock, Deutsche mostly misses.


Deutsche Bank Said:

CAPS Says (out of five stars possible):

Deutsche Bank's Picks Lagged the S&P By:

Ford in 2007



37 points

Ford in 2008



4 points

Ford in 2010



35 points

Quite literally, every time Deutsche has uttered an opinion on Ford stock over the past eight years, it's been wrong. Every. Single. Time.

When you consider this track record, it's hard to be optimistic about Ford's chances now that Deutsche is singing its praises once again. It's even harder once you take a good hard look at the numbers.

Ford: buy the numbers?
Sporting a price-to-earnings ratio of only nine today, a 3.1% dividend yield, and an 11.4% projected growth rate, Ford stock hardly seems expensive. And yet, if you look under the hood, you'll soon see that this stock costs more than it seems.

Free cash flow  at Ford amounted to a mere $3.8 billion last year -- barely half the company's reported $7.2 billion in "GAAP" earnings. This suggests both that the earnings Ford reports are of low quality, and that Ford stock is more expensive than it appears. Dividing free cash flow into market cap, we find Ford shares selling for close to 16.5 times FCF, which is not an attractive price relative to 11.4% growth -- even with the dividend.

This is particularly true when you consider that archrival General Motors, although selling for a higher P/E ratio (and similarly free cash flow-challenged), pays a higher dividend yield than Ford does, and boasts a higher expected growth rate to boot. While I'm not a huge fan of GM stock (its 18.6 P/FCF ratio offers only a "fair" value relative to 18.7% projected earnings growth), I do believe GM shares are more attractively priced than Ford's.

The fact that Deutsche Bank is recommending Ford over GM only confirms my opinion.

Top dividend stocks for the next decade
Do you like the fact that GM pays a bigger dividend than Ford does? You should. The smartest investors know that investing in dividend stocks is essential to beating the stock market over the long term. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


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

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.

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: 2912328, ~/Articles/ArticleHandler.aspx, 9/2/2015 3:16:02 PM

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...

Rich Smith

As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

Today's Market

updated Moments ago Sponsored by:
DOW 16,256.84 198.49 1.24%
S&P 500 1,937.06 23.21 1.21%
NASD 4,706.07 69.97 1.51%

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

9/2/2015 2:51 PM
F $13.82 Up +0.10 +0.69%
Ford CAPS Rating: ****
GM $29.00 Up +0.36 +1.27%
General Motors CAPS Rating: ***