Rising Star Buy: Grabbing More Ford

This article is part of our Rising Star portfolios series.

The way I'm adding positions to my Messed-Up Expectations portfolio is to buy companies in one, two, or three steps, each step approximately the same size. The riskiest companies will only see one purchase, while those that I judge to be less risky will get two or, possibly, three purchases. Thus, I'll only purchase SUPERVALU once, Western Digital will probably remain at two purchases, but I'd like to get a third purchase of Power-One at the right price.

Handling it this way, I believe, lets me size the positions for risk level, being hurt less if the risky ones crash and burn. Plus, it helps me avoid the emotion of greed, trying to grab the whole position in one big bite just before it rockets to the moon! I've got to get in NOW! <pant, pant> Heh, see what I mean? What if I'm wrong? That's a dangerous path to take.

Just about three weeks ago, I bought the MUE portfolio's first position in Ford Motor (NYSE: F) and stated at the end of that article that I'd be looking to increase the position. Well, as Lewis Carroll's Walrus said, "The time has come."

Same ol', same ol'
Nothing's really changed since I first purchased Ford. Last night's share price is right around where I bought it at $14 and change. Recently, Ford has been growing monthly auto sales in the low- to mid-20% range. And, it's cutting back on incentives while selling more autos, which helps maintain margins. In January, it cut average incentives by 11% year over year. In February, it cut again, by just under 10%.

Source: Autodata Corp. Data reflects year-over-year changes during February.

Chrysler also kept with the pattern of lowering incentives, but GM, Honda, and Toyota all continued to raise them.

Expectations
About the only change since last month is that I now have the latest free cash flow numbers available, which I didn't before. Starting with $7.38 billion in FCF from 2010, last night's closing price of $14.67 has priced in just 2.5% of annual growth for five years, and 1.2% for another five years with nothing after that (discounting at my 15% hurdle rate).

Now I know Ford's a big and cyclical company, but that seems awfully low to me given the pent-up demand I pointed out last time and the possibility of grabbing market share from Toyota and Honda as they run into manufacturing problems at their Japanese plants.

Therefore, tomorrow the MUE portfolio will buy another round of Ford, increasing the position size from about 2% of initial funds to 4%.

If you haven't already, add Ford to My Watchlist, and then come visit me and others on my active discussion board to talk about this and other MUE stocks.