The last year has been very good for Ford (NYSE:F) - the stock is up about 15% for the year. The past three months have been a bit harsh to the stock and it has lost about 7% in that period. Still the price appreciation has been hugely impressive. However, since the start of the New Year, the stock is on its way up again and it has gained more than 4% in the last few days. I believe the upward trend will continue as the recovery in the economy continues.
Ford and Its Competitors
Ford has been trying to build its market share in Japan over a decade now since Japan is one of the most lucrative markets for automobiles in the world. As of the previous year records, Ford sold 3,896 cars in Japan which is roughly 0.1% market share. The Japanese market is dominated by local manufacturers. Last year, American manufacturers sold 13,000 cars in the Japanese market - it amounts to only 0.8% of the total car sales of 1.6 million. Ford is trying to make an entry in the Japanese market again with Fiesta. The focus now is on providing the compact car that is suitable for the Japanese conditions. It is going to be the lowest priced car offered by Ford in the Japanese market at $22,900.
One might wonder why Ford is trying to re-enter the market where it failed almost a decade ago. However, it may be the part of its broader strategy to get a stronger foothold in the Asian markets. It is another sign that the company is trying to grow aggressively by taking on its rivals in their own backyards.
Global sales for Ford have been growing at an impressive rate - the company is expecting 25% growth in its global sales and 50% growth in the small cars segment by the end of the decade. The total new launches for this year will be 23, and 16 of these vehicles will be in the North America. Ford introdcued the F-150 with the aluminum frame. Ford F-150 has been the best selling truck in the U.S. and the new launch will certainly grow sales further. The decision to launch 23 models during the year shows what sort of growth the company is expecting from the market.
As for General Motors (NYSE:GM), it barely crosses 1,000 vehicles a year in Japan, while its competitor Toyota Motors (NYSE:TM) has around 40% of the market share in Japan. Toyota is proving to be a very strong competitor, not just in Japan but all over the world. Toyota has global presence and very strong presence in Asia Pacific and South Asia. These areas have some of the biggest markets for automobile manufacturers. However, Ford is making inroads in China and India, two of the biggest markets for automobiles in the world. On the other hand, GM has long-term plans for Japan. Despite meager sales (only 1,000 units), the company has seen massive growth in its luxury vehicles. Over the past three years, the sales for its luxury vehicles have more than doubled. Historically, Japanese consumers have favored European imported or locally manufactured cars - however, the increase in sales from GM indicates the trend is somewhat changing.
Comparison of The Fundamentals
Following is a table showing relative key fundamentals of the three companies
Net profit Margin
In terms of pretax margin, Ford is ahead of GM but TM is way ahead of both of the American manufacturers. However, Ford has an edge over Toyota in terms of tax. Ford's average tax is coming to be 27.3% whereas TM is paying 34.7% tax. In terms of P/E ratio, GE looks better placed than both of its competitors. In my opinion, Ford has a lot of room to grow in terms of stock price here. For EPS, TM is ahead of both due to its large sales volume all over the world and economies of scale.
Interestingly, when it comes to ROE, Ford is ahead of both GM and TM having and ROE more than double of its competitors. Most of the funding of Ford would have been done through taking debt rather than issuing equity. Ford may have an advantage here being the smaller one. It will be easier to improve the company's efficiency and would take much lesser time as compared to GM and TM.
Recently the company has announced a 25% increase in the dividend for the first quarter of 2014. This is the second time in the last two years that the company has increased its dividend. After Ford started to give its quarterly dividend at $0.05 a share in the first quarter of 2012, Ford increased its dividend to $0.10 in the first quarter of 2013. We have seen another increase for the first quarter of 2014, and it looks like the company will grow its dividends regularly in the future. The company previously paid a dividend of $0.4 with a dividend yield of 2.6%. Now, with the increased dividend and according to the current share price, the new dividend yield would be around 3.2%.
Ford has done extremely well over the past two years and the stock price has reflected the good progress of the company. I believe the company can carry on its momentum into 2014 and continue to grow. The markets are making a recovery and automobile sector is reaping the benefits. Looking at the future growth prospects and the fundamentals of the company, I believe Ford Motors is an attractive investment at current price levels.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.