Ford Gets Knocked Around
Ford (F) has really been an incredible story over the past 4 years. As the heart of Detroit and the American auto scene since 1903, it's one of the most widely known names in automobiles worldwide. It was one of the first companies to introduce the assembly line, and was on the forefront of the automotive industry for a hundred years, until the 2000s rolled around.
In 2005, the company's corporate bonds had been moved to junk status, profit margins were waning, and Ford had to close 14 factories and cut 30,000 jobs. Ford moved from SUV's and trucks primarily, to hybrids and crossover SUVs.
In 2006, Ford reported an annual loss of $12.7 billion. In 2007, it lost $2.7 billion. In 2008, on the heels of the financial crisis, the company reported a $14.6 billion loss, the largest in company history. After choosing not to receive government bailout money (like Chrysler and GM) Ford was able to turn a profit of $2.7 billion for the fiscal year 2009.
Ford has been a great investment vehicle since 2008, when it hit its lows in the midst of the financial crisis. Since its low in 2008, Ford is up over 600%. In the short term, it's also provided 67% returns for those that have invested in the company over the past 12 months.
The words of an acquaintance of mine continue to ring through my ears every time I think about Ford. Over a beer in 2008, he calmly said "Ford isn't going anywhere, I'm loading up at $2.50/share". I laughed and wished him luck, thinking Ford would likely break $4 or $5 again, but not anticipating anything near what it has done since then. I need to remember that the next time I'm looking for someone to borrow money from.
Since 2008, Ford has really had the wind at its back, turning itself and its product line around in impressive fashion. If you're one of the people that think just because Ford is trading at its recent highs that it's not a suitable investment, think again. Here's 5 reasons that I think Ford remains an attractive buy:
1. Ford is Coming off of a Great August
August 2013 was Ford's best sales month since 2007. In other words, Ford is leading the charge of U.S. automakers coming back from the financial crisis.
Ford is just coming off of an outstanding month, where they reported on their conference call that truck sales were up by 18.4% and total vehicles bearing the brand name were up 12.7%.
Ford had great success with its F-Series, as reported by Bloomberg:
Ford deliveries of F-Series pickups surged 22 percent to 71,115, the Dearborn, Michigan-based automaker said in its statement. The company exceeded the 70,000 mark for the second month this year, a feat it last accomplished in 2006.
"At August's pace, we were selling one F-Series pickup every 42 seconds," Ken Czubay, vice president of U.S. marketing, sales and service, said on the conference call.
Implementing a strategy of using leases as ways to pitch their middle end cars to consumers, Ford has led the U.S. automakers with surprisingly strong results. Leasing is a strategy which results in cars being returned to the dealer after its contract is up; in essence, the vehicle is "rented" for smaller monthly payments. It can also be a risky strategy for automakers, as there are fixed costs associated with administering a lease, and if a vehicle's residual value plummets, it can negatively affect the automaker's bottom line. So far, the risk has paid off for Ford.
In addition to Ford leading this charge, it remains an important snapshot into the auto industry and economy as a whole. More sales and more credit are being extended to consumers - a very large set of steps, taken together, to move automakers in the right direction.
2. Ford's Credit Just Got Upgraded
The U.S. automotive sector is on a roll. Carmakers have been reporting their best sales figures since before the financial crisis, the publicly-traded players are enjoying year-to-date gains and Friday brought more good news on the credit side.
Standard & Poor's raised its rating on Ford Motor to investment grade, upping the Detroit carmaker to BBB- from BB+. The company's financing arm, Ford Motor Credit, got a matching upgrade.
The ratings agency expects Ford's solid performance in North America and better pension coverage will bolster its credit standing, and thinks the company is better diversifying its profits globally with recent sales gains in China and signs that a disastrous stretch in the European automotive market may be turning.
Having its credit upgraded obviously does a lot to increase the credibility behind a company. As companies like J.C. Penney (JCP) and Sears (SHLD) are seeing, credit downgrades are often foreshadowing to poor times ahead. Even in Ford's case, where their corporate bonds were downgraded to junk status in the 2000's, it was a precursor of things to come.
Conversely, the upgrading of the company's credit now is likely to be a sign that things are going to continue to progress in the right direction for Ford as a company.
3. Ford Pays Dividends and is Likely to Raise Them
Dividends are just lovely. They're like little security blankets for investors that choose to place their money in certain equities. Dividends in the market remain the best loyalty program companies have implemented since casinos started handing out vats of whiskey, buffet tickets & free rooms simply for handing over your hard earned money directly to them.
Here's Ford's dividend history:
During Ford's heyday in the late 90's, the dividend party was in full effect. Since then, the company's dividends went the same way as the company: down the tubes.
As you can see, in 2012, Ford re-established its dividend (albeit small), and has already bumped it back up to $0.10/share.
In addition, the company's property plant & equipment has started to rise up again, signaling a period of growth starting:
Alongside the company's credit being upgraded, dividends are another financial metric that will run commensurate with how the company has a whole is doing. Buying into Ford now catches the dividends on an upswing, as Ford has consistently raised or lowered their offering in conjunction with how the business is performing. Ford is likely to be paying well above $0.10 dividends a year or two from now.
As I often say, I am not a chartist. I use some basic technicals as a supplemental way to add an additional gauge on a stock. Technicals are important because they can offer good insight as to resistance/support, and also because so much of today's trading is done algorithmically - so, data becomes increasingly important in this computerized age.
You don't need to be much of a chartist to see that Ford is in the midst of a serious sustained uptrend. All signs point to up - the moving averages are looking healthy, the RSI indicates that the stock hasn't really been overbought over the last three months, and MACD is signaling a likely bump up again over the $17.50 levels that the stock is currently trading at.
Call me old school, but I simply like this stock as a buy on principle.
I wasn't really ever a Ford guy growing up, like many of my Midwestern friends - I grew up in a working class household that was constantly being screwed over by American made cars; transmissions falling out, engines blowing up, airbags deploying themselves for no reason - you know, the usual.
My family eventually bought a Nissan that they loved, and we were a Japanese car family after that.
Naturally, into my adulthood in the 80's and early 90's, I regarded Ford, in general technical terms, as pieces of crap. I was probably the least surprised person in the world when the company started to go belly up in the 2000's, and probably would have argued that it was the end of the Ford era as we know it.
Then, something interesting happened that caught my eye : Ford didn't take any bailout money.
From a Ford commercial:
"I wasn't going to buy another car that was bailed out by our government. I was going to buy from a manufacturer that's standing on their own: win, lose, or draw. That's what America is about is taking the chance to succeed and understanding when you fail that you gotta pick yourself up and go back to work. Ford is that company for me."
So, while it is true that Ford received government loans in 09' to restructure, I found myself standing with the company on principle coming out of the auto recession, and rooting for Ford. Hey, I have a thing for underdogs.
Today, I see Ford in a new light, with more respect for the company than I've ever had. Essentially, the company has turned a corner and is starting its march back to the top of U.S. automakers.
For these five reasons, I feel Ford is likely to be a lucrative investment, even at its current highs - as growing sales, increased credit, dividend raises and technicals propel Ford's stock towards the $20 mark and beyond once again.
Best of luck to all investors.