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Summary

  • The recent decline in the market has made some good stocks a bit cheaper.
  • One of those, Ford, received a nice upgrade from Deutsche Bank today. The stock also has a nice second half story.
  • The shares are cheap given the company's growth prospects, an over 3% yield and better sales ahead in some of its core markets.

If nothing else, the market certainly has not been boring over the past week and a half. The market's decline has made several stocks I already wanted to add to a bit cheaper. One of those stocks is automaker Ford (NYSE:F) which picked up a nice endorsement from Deutsche Bank today.

Deutsche Bank's analyst upgraded the shares to "Buy" from "Hold" with a price target of $19 a share on Ford. He calls Ford a "second half story" and is particularly attracted to the upcoming rollout of its market leading F-150 truck which will have an aluminum body. He notes a "significant pricing opportunity from Ford's pickup truck price premium versus General Motors (NYSE:GM). The analyst commented that Ford's pickup price premium has reached its lowest level in years. In addition, the new F150 is expected to be "significantly more cost competitive," with an additional $750-$800 cost for the aluminum body."

This view coincides with my own. Earnings should be down at Ford this year mainly due to the huge amount of new models that will be launched worldwide this year. However, this will be a blip and earnings are projected to pop in FY2015. Ford earned $1.62 in FY2013. The current consensus calls for EPS to be $1.34 a share in FY2014 before rebounding to $1.91 in FY2015.

Core Markets Improving:

Although European operations will still lose money in 2014, auto sales in the Eurozone have slowly picked up over the past few months. The company has an opportunity to at least lose less money on the continent in 2014 than in 2013.

In addition, after two months of tepid auto sales in the United States to start the New Year. Sales came in better than expected in March. A horrid winter throughout most of the country this year pushed out auto sales. Not that we are into Spring that pent up demand should bolster sales in the months ahead.

Finally, sales in China are booming. Sales rose an impressive 45% in Q1 with its joint ventures led by strong demand for the Explorer, Edge and Focus models. March was the first time ever that the automaker sold over 100K vehicles in China in a month. Ford continues to take market share from Japanese automakers in the Middle Kingdom.

Valuation:

Ford is down some 10% from its highs earlier in the year. The shares go for just over 8x projected FY2015 earnings. Ford has a five-year projected PEG of just over 1 (1.02). The stock also generates a solid 3.1% dividend yield. New product rollouts should generate significant buzz for the company in the second half of the year. The recent pullback in the shares are offering a solid entry point to add additional shares at lower prices in front of a better environment in the third and fourth quarters of 2014. Accumulate.

Source: Ford: A Second Half Story To Buy Now