- Ford's China sales went up 67% YoY and U.K sales went up for the 24th consecutive month.
- Venerable CEO's much deserved compensation almost guarantees his stay at the company.
- But the stock faces continuous pessimism and this is a chance for investors to buy the bargain.
Ford Motor (NYSE:F) is no stranger to undervaluation. It was not long ago that the stock had a PE of 2 or 3 and this was much after the 2008/09 crisis. This article presents a few positives that Ford investors can take forward into the month of March. These positives for the company will eventually turn into positives for the stock. Let us get into the details.
February Sales: The trouble when investors just skim through the headlines is that important numbers and details can get lost. While Ford sold 6% less cars in February 2014 than it did a year ago, the report had a lot of positives:
- The F-Series, the most important series for Ford, was up 2.6%. This was the best February in 8 years for the F-Series, according to Ford. The strength of the F-Series enabled Ford to outnumber General Motors (NYSE:GM) by 34% to 22.50% in truck sales.
- The much haunted U.K division saw an increase of 3% in February. As Seeking Alpha has covered here, this marks 24 consecutive months of increasing sales in the U.K. Talk about a turnaround.
China Numbers: As impressive as the U.K numbers were, the most important piece of news for Ford came from China. Sales rose 67% Y/Y. Obviously, growth cannot continue at this pace but Ford is on track to reach its target of achieving 5% market share in China. Ford is ramping up R&D expenses and headcount in China as part of this effort.
Needless to say, cracking the largest automobile market will go a long way in enhancing Ford's future. As of now, the start seems very encouraging for investors. But stiff competition from local manufacturers and other international giants like Toyota Motors (NYSE:TM) is a given.
CEO Compensation: CEO Alan Mulally has been awarded about 900,000 shares that are worth about $14 million. Readers might ask "Since when are such high compensation numbers a positive?" Right question, but the positive here is that Mr. Mulally cannot cash it in until 2016.
There were some jitters among Ford investors when there were talks of him being the next Microsoft Corporation (NASDAQ:MSFT) CEO. Now that this concern is behind investors, the $14 million compensation vesting in 2016 almost assures investors that Mr. Mulally is certain to continue at least for two more years. This is not to say that money is the only motivating factor for this CEO but it does drive home his importance after the turnaround witnessed since the 2008/09 lows.
Credit: Ford announced it is planning to increase credit limits by 12% to $12 billion from the current $10.7 billion. While more debt is usually seen as a negative, this borrowing is clearly for one or both of these reasons: a) to pay off pension commitments, as targeted by Ford. b) to fund the R&D expenses in China and U.K.
Technical Indicator: Ford's Relative Strength Index (RSI) is in the sweet spot right now. RSI in the 50s indicates that the stock is not terribly overbought or oversold right now and is in more of a holding pattern. This goes hand in hand with the point written in this SA article that the stock is likely to break through the $16 barrier after considerable consolidation in the $15 range.
Conclusion: To wrap it up, despite the stock's flat performance in 2014, things are looking up for Ford as evidenced by the following positives in February.
- Continuing strength of the F-Series in U.S.
- A rejuvenated U.K division.
- A respected CEO who is going nowhere (hopefully).
- A promising start toward reaching the target and beyond in China.
Ford investors have (rightly) been frustrated that Mr. Market does not even offer it the premium that General Motors enjoys. (Check the comments section of the SA article linked above to read such frustrated comments). This is in spite of the fact that Ford paid all its bills on time and did not need a bail out. But time is our friend if we are on the long side of a trade. Collect and reinvest the dividends while waiting for Ford and Mr. Market to do their needful.
Additional disclosure: Might initiate a position in F if the yield approaches 3.50% or more.