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Should Investors Buy Ford Motor Company Stock?

In May, Ford Motor Company  (NYSE: F  ) reported its strongest sales since 2006, and U.S. auto sales in general have been trending upwards over the last few months. Will Ford get a boost from the industry this month as well? On Tuesday's installment of "Stock of the Day", Motley Fool analyst Michael Finarelli says investors shouldn't put too much weight in one month's figures. Long-term investors should keep their eyes not only on Ford's sales, but -- more importantly -- on how the company converts those sales to underlying profits and cash flow.

Mike notes that Ford's gross and operating margins have been on the decline for the past several years -- in fact, for the 12 months ending March 31, out of every dollar of sales, the company was only able to hold onto roughly $0.03 of operating income thanks to the ongoing expenses inherent in Ford's industry.

So is Mike bullish on Ford? Unfortunately, he's not a fan of the economics of the automobile industry -- profits are traditionally thin due to the huge expenses involved, and cash flow available for shareholders suffers due to the large and persistent capital investments needed. Furthermore, on a price to earnings basis, shares of Ford are trading around the higher end of where they've been over the past 10 years.

In the video below, Mike tells how those industry economics are working against Ford.

Warren Buffett's worst auto nightmare (Hint: It's not Tesla)
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to invest in this megatrend. Click here to access our exclusive report on this stock.


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  • Report this Comment On January 21, 2015, at 4:04 PM, dontbuyford wrote:

    You can buy Ford stock if you want... personally after 5 Ford purchases, I have a van that the extended warranty expired and the transmission failed with less than 60k miles on it.

    Ford say they could not do anything and sorry they did not meet my expectations.

    Was it too much to expect to get more than 60k moles out of a transmission.. so 3100 for a repaired trans, 1200 for an extended warranty that expired.. for 4300 I got squat.

    I will not be feeding the FORD coffers in the future..

    Quality is job 1...................NOT..

    So invest if you want... looking around the internet I see many unhappy Ford customers..

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Mark Reeth
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Mark Reeth is an incredibly handsome Member Liaison, and is an expert on all things Foolish. Follow him on Twitter for all of the most important Fool news.

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