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Introduction

Ford (NYSE:F) is an automotive company. It has done a phenomenal job of staying afloat throughout the great recession without the need of a government hand out, while Government Motors... whoops, I meant General Motors (NYSE:GM) continues to lag behind the competition.

Qualitative Analysis

Source: Information pertaining to Ford came from the shareholder annual report.

Ford is a global powerhouse in the automotive industry; the brands Ford owns are Ford and Lincoln. The company continues to develop and market superior product offerings; in fact when was the last time you heard of Ford being featured as ranked number one in a product category? I was dumbfounded by the features, specifications, design, fuel efficiency, and product quality of the Ford Fusion Hybrid. In fact, I always had this mindset that American made was junk, but that perception is slowly starting to die away.

Ford continues to come a long way under the leadership of Alan R. Mulally who took charge of Ford in 2006 as CEO. Alan Mulally is a former Vice President of Boeing (NYSE:BA). Alan's leadership is what has turned Ford from an uninspiring brand into a full blown luxury brand that spreads the globe.

Ford's management strategy is called the One Ford Plan. Ford's management strategy is to aggressively restructure the company in order to operate profitably, accelerate development of new products, make necessary improvements to the balance sheet, and leverage global assets.

(click to enlarge)

The company has made noticeable improvements to the balance sheet, phenomenal improvements in earnings, and great leadership changes this past decade. These things are what make the difference between good and great companies in corporate America.

Ford aggressively competes with General Motors, Toyota Motor Corp (NYSE:TM), Honda Motor Company (NYSE:HMC), Tesla Motors (NASDAQ:TSLA), among many others.

Technical Analysis

The stock has been on a continuous up-trend since 2012 August. On 12/24/2012 the stock skyrocketed by approximately 4.55%. Ford continues to trade in an up-trend.

(click to enlarge)

Source: Chart from freestockcharts.com

The stock is trading above the 20-, 50- , and 200- Day Moving Averages. The stock will experience further upside through 2013, as investors have under-bought the growth prospects of the company.

Notable support is $9.00, $10.00, and $11.00 per share.

Notable resistance is $13.00, $14.50, and $16.00 per share.

Street Assessment

Analysts on a consensus basis have reasonable expectations for the company going forward.

Growth Est

F

Industry

Sector

S&P 500

Current Qtr.

25.00%

N/A

108.10%

9.60%

Next Qtr.

5.10%

N/A

51.20%

15.20%

This Year

-11.30%

-7.30%

67.80%

7.20%

Next Year

9.00%

13.30%

-7.20%

13.10%

Past 5 Years (per annum)

6.66%

N/A

N/A

N/A

Next 5 Years (per annum)

5.77%

14.93%

15.73%

8.74%

Price/Earnings (avg. for comparison categories)

8.85

9.95

19.18

14.76

PEG Ratio (avg. for comparison categories)

1.53

1.06

1.81

1.41

Source: Table and data from Yahoo Finance

The company shows reasonable growth as analysts on a consensus basis have a 5-year average growth rate forecast of 5.77% (based on the above table). This growth rate is below the industry average for the next 5-years (13.30%).

Earnings History

11-Dec

12-Mar

12-Jun

12-Sep

EPS Est

0.25

0.35

0.28

0.3

EPS Actual

0.2

0.39

0.3

0.4

Difference

-0.05

0.04

0.02

0.1

Surprise %

-20.00%

11.40%

7.10%

33.30%

Source: Table and data from Yahoo Finance

The average surprise percentage is 7.9% above analyst forecast earnings over the past four quarters (based on the above table).

Forecast and History

Year

Basic EPS

P/E Multiple

2005

$ 1.10

6.66

2006

$ (6.72)

-

2007

$ (1.38)

-

2008

$ (6.46)

-

2009

$ 0.86

11.42

2010

$ 1.66

9.93

2011

$ 4.94

2.13

2012

$ 1.34

9.25

Source: Table created by Alex Cho, data from shareholder annual report, and price history is from Yahoo Finance.

The EPS figure shows that throughout the 2005-2008 period, earnings were in the negative as the company was adversely affected by the great recession. Prior to the recession the company was in the middle of restructuring. Once the United States economy exited the recession in 2010-2012, the company earnings have improved. The abnormal earnings of $4.94 in 2011 were due to a provisional benefit from taxes. This improvement in net income was $20.2 billion and is a one-time event and should not be considered a part of the long-term earnings growth trend.

(click to enlarge)

Source: Table created by Alex Cho, data from shareholder annual report, and price history from Yahoo Finance.

By observing the chart, we can conclude that the business is somewhat cyclical and is affected by macroeconomics. Therefore one of the largest risk factors to Ford is the slowing of international gross domestic product growth. So as long as the global economy continues to grow, the company will generate reasonable returns over a 5-year time span based on the forecast below.

(click to enlarge)

Source: Forecast and table by Alex Cho

By 2018 I anticipate the company to generate $1.98 in earnings per share. This is because of earnings growth, improving global outlook, earnings management and continued development overseas.

The forecast is proprietary, and below is a non-linear chart indicating the price of the stock over the next 5 years.

(click to enlarge)

Source: Forecast and chart by Alex Cho

Below is a price chart incorporating the past 8 years and the next 5 years. The chart includes 13 years in pricing based on my forecast and price history on December 31st of each year.

(click to enlarge)

Source: Forecast and chart created by Alex Cho, data from shareholder annual report, and price history is from Yahoo Finance.

Investment Strategy

Ford currently trades at $12.40. I have a price forecast of $14.34 for 2013. Ford is in a long-term up-trend. I anticipate gradual improvements in the price of the stock, as the growth rate does not provide for compelling stock appreciation for the foreseeable future.

Short Term

Over the next twelve months, the stock is likely to appreciate from $12.40 to $14.34 per share. This implies 15.6% upside from current levels. The technical analysis indicates an up-trend (break above the symmetrical triangle formation). While the previously mentioned price forecast using fundamental analysis further supports the trade set-up.

Investors should buy Ford at $12.40 and sell at $14.34 to pocket short-term gains of 15.6% by March 2013.

Long Term

The company is a great investment. I anticipate Ford to deliver upon the price and earnings forecast despite the risk factors (macroeconomic, competition, etc.). Ford's primary upside catalyst is product development, international development, and earnings management. I anticipate the company to deliver upon my forecasted price target of $19.41 by 2018. This implies a return of 57% by 2018. This rate of return is exceptional, considering Ford has a market capitalization of $46.4B. The added liquidity allows larger institutions to participate in the buying and selling of stock, making this a compelling growth investment for both large and small investors.

Conclusion

Buy Ford for long-term growth. American manufacturing is not dead, in fact it is going to come back roaring stronger, better, and faster then ever before. The conclusion is simple: buy Ford.

Oh! If you can afford it, buy the car too!

Source: American Manufacturing Is Not Dead: Buy Ford