Ford May Be Able To 'EcoBoost' Your Dividend Portfolio Right Now

Mar.29.14 | About: Ford Motor (F)

Summary

The stock is extremely inexpensive on next year's earnings expectations.

The company boasts a wonderful dividend yield.

The company has the best return on equity in the industry.

The last time I wrote about Ford Motor Company (NYSE:F), I stated:

"The bullish sentiment for China and Europe, high ROE and excellent fundamentals are what I like about the company, making it a buy at these levels."

Since the time the article was published, the stock has dropped 11.92% versus the 9.97% gain the S&P 500 (NYSEARCA:SPY) posted. Ford operates in the global automotive industry with two segments: Automotive (Automotive brands include Ford and Lincoln) and Financials Services (Ford Motor Credit Company).

On January 28, 2014, the company reported fourth quarter earnings of $0.31 per share, which was in line with the consensus of analysts' estimates. In the past year, the company's stock is up 17.49%, excluding dividends (up 20.2% including dividends), and is losing to the S&P 500, which has gained 18.37% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying shares of the company right now.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 8.78, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 8.09 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $1.91 per share and I'd consider the stock inexpensive until about $29. The 1-year PEG ratio (0.21), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is inexpensively priced based on a 1-year EPS growth rate of 42.22%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 42.22%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 11.39%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

12Sep13

17.35

11.54

9.99

1.76

26

0.79

14.63

28Mar14

15.45

8.78

8.09

1.91

29

0.21

42.22

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Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.24% with a payout ratio of 28% of trailing 12-month earnings while sporting return on assets, equity and investment values of 3.6%, 34.2% and 3.9%, respectively, which are all respectable values.

The really high return on equity value (34.2%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry (for comparison purposes, Ford tops followed by Tata Motors Ltd. (NYSE:TTM) which sports an ROE of 26.1% and General Motors Company (NYSE:GM) which sports an ROE of 24.6%).

Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.24% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

12Sep13

2.28

19

3.2

33.9

3.5

28Mar14

3.24

28

3.6

34.2

3.9

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Technicals

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Looking first at the relative strength index chart [RSI] at the top, I see the stock in middle-ground territory with a current value of 52.83 but bouncing off of oversold territory since 03Feb14. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($15.45), I'm looking at $15.79 to act as resistance and $15.09 to act as support for a risk/reward ratio which plays out to be -2.33% to 2.2%.

Recent News

  1. CEO Alan Mullaly earned $23.2 million last year. This is 10.5% more than he took home the prior year.
  2. The company will invest $500 million for their Lima, Ohio plant. The plant will produce the V-6 EcoBoost engine for the popular F-150 trucks as this line of trucks has shown exceptionally strong results.
  3. Kelley Blue Book predicts March auto sales will bounce back after February's results. The auto appraiser expects Ford's sales to increase 1% for the month.

Conclusion

The company has been hiring over 10,000 workers over the past couple of years, helping put money in the pockets of people so they can spend it. One of the ways that they're going to spend it is on a new car, and Ford produces a few lines of great ones at that. Fundamentally, the stock is inexpensively priced on next year's earnings, inexpensively priced on earnings growth, and has great near and long-term earnings growth potential. Financially, the return on equity is top of the class and the company boasts an excellent dividend yield. Technically, it appears the stock has some upward momentum going right now but may be getting tired. Due to the excellent valuations, high earnings growth expectations, and solid dividend I would be pulling the trigger on this name, but would want to wait until after the March sales numbers are reported early next week.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long GM, SPY. 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.