Ford's (NYSE:F) stock is turning the right corner this morning, following better than expected Q1 results. The company earned a pretax profit of 41 cents, beating the 37 cents analyst estimate. Revenue rose to $35.8 billion from $32.4 billion, fueled by growth in sales in U.S. and China; Europe was a drag.
Ford's sales growth in a sluggish world market environment reflects the company's relentless efforts to cut cost and improve quality. Most notably, churning out new models that have captured consumer interest. One of its models, the Ford Focus, reclaimed the title as the world's top-selling car, while another of its models - the New Fusion - is closing in on Toyota's (NYSE:TM) Camry. Nevertheless, its stock has been range bound. What should investors do?
It depends on the investment horizon of each individual investor. Short-term oriented investors may want to take profits as the stock rallies. Long-term investors should stay with the stock for five reasons: First, the doubling of its quarterly dividend, from 5 to 10 cents per share, an appealing proposition for today's low interest rate environment.
Second, Ford is seeing an improvement in economic fundamentals. With improving quality and the introduction of new models, Ford has been benefiting from a broader recognition of its brand - Ford's 2013 Fusion was named Car of the Year by AOL Autos. The company has further expanded its overseas presence, especially in China, where it is the largest foreign company. It is also expected to benefit from the backlash of the territorial disputes between Japan and China.
Third, the company is seeing improving financial fundamentals, especially in its profit margins. Ford was the only American automobile company that didn't receive government money during the 2008 crisis. Last year, both S&P and Fitch raised Ford's credit rating.
Ford Motor Company
Quarterly Revenue Growth
Quarterly earnings growth
Operating cash flow
*Fye Dec 30, 2013; Source: Yahoo.Finance.com
Fourth, Ford has been very aggressive in addressing its European market woes by idling factories, cutting thousands of jobs, and taking a $3 billion charge over the next two years.
Fifth, the introduction of new more-fuel efficient products that cater to different segments of the global economy, including the all-new Ford Fusion and Mondeo, Escape and Kuga, EcoSport in South Africa, and B-Max in Europe.
A few words of caution: Automobile stocks are highly cyclical. This means they are exposed to fluctuations in the global economy. That's why I would constantly keep an eye to the fragile global recovery, especially in Europe where even France and Germany seem to be headed for a contraction rather than an expansion.
Disclosure: I am long F. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.