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Writing in 2009, I argued the investment case for Ford at $3.25 a share, based largely on fundamentals of good management and improved quality. With the stock now trading over $12 a share (enjoying a 5% bounce yesterday to close at $12.44 from an upgrade by Barclays Capital [1] ), perhaps that was luck, but at the end of the day my qualitative observations were on target.

The shares are nevertheless down from their April 26, 2010 peak of $14.57, raising the question of whether now is a good time to add Ford positions. I think it is.

Right now, there are lots of fuzzy reasons that make the market nervous about Ford (F). After such huge gains, it’s natural to be worried about a “hangover” effect. Then there are double dip fears, the return of General Motors, and bad numbers in Europe. [2]

But there are also reasons to believe Ford will stay on track and eventually return to the April peak:

  • Less vulnerability to reduced sales than luxury brands if tax cuts for U.S. households earning over $250,000 are reduced;
  • Continuation of huge sales gains in Asia outweighing lagging European markets; [3]
  • Greater traction everywhere because of continued higher quality;
  • Lower corporate debt expenses due to a strengthening corporate credit rating.
  • The shares already are trading at a P/E of 8.33, near the low end of it's historical band, so the shares could appreciate significantly even with modest progress that's consistent.

Ford has also moved forward on alternative energy vehicles and environmentally friendly manufacturing facilities [4], generating important political favor in the U.S., while Prius producing green-leader Toyota has been tainted by its safety scandal.

So while the opportunity to make the massive profits that those who jumped into Ford when the U.S. auto industry was on life support has passed, just because an opportunity is not perfect does not mean it’s not good. There’s a good case that Ford around $12.50 is an opportunity (though it might be worth it to watch for dips after the bounce from the Barclays upgrade fades) for those willing to wait for the storm to pass.

Disclaimer: The information provided in this post does not constitute professional investment advice, and should only be used in consonance with all available information, including the opinion of a professional adviser, to make an investment decision.


Source: Ford: A New Chance to Get on Board