I have not spoken about Ford (NYSE:F) for quite a while even though it occupies a significant stake in my own portfolio. Ford is one of the more unique equities in that is attractive on several fronts. Technically, the shares are a part of my income portfolio due to their ~3% yield. However the stock is also cheap on a valuation basis and has good growth drivers in the year ahead.
I was reminded of my investment in this American manufacturing icon today when Stern Agee raised its rating on Ford from "Hold" to "Buy". The analyst firm also slapped a $22 a share price target on the shares, approximately 25% above the current stock price.
I believe the upgrade will be prescient as I have said in recent articles on Ford; this stock is a second half of the year story and the upside looks strong from here. The company's earnings are projected to drop somewhat this year due to the costs of preparing for the busiest rollout schedule in the company's over century long existence. This includes the critical launch of its new all aluminum F-150 series truck line. This first of its kind truck will have higher price points due to additional benefits such as significantly better gas mileage. The rollout should also cement Ford's leadership in the high margin truck segment.
The company is going to start to benefit from its huge rollout schedule as we get near the latter part of the year. Launch costs will start to fall in the year ahead and these new launches should boost revenues and margins. The recent July domestic vehicle sales report was encouraging. Ford delivered 9.5% year-over-year gains, slightly better than expected and is showing strength across a variety of segments.
The company's European operations continue to improve, although will most likely continue to post losses - much lower in years past it should be noted. More importantly, after a slow start, Ford is gaining share in the critical market of China where it is up to ~90,000 vehicles per month through joint ventures which is up an impressive third year-over-year in the first seven months of the year.
Ford is tracking towards earning between $1.30 to $1.35 a share in FY2014. However, as new rollouts start to boost sales and margins; consensus has this automaker earning between $1.90 to $2.00 a share in FY2015. This means the shares are selling at under nine times forward earnings, a ~40% discount to the overall market. Combined with a three percent dividend yield, the stock is the perfect blend of yield, value and growth and is geared up to outperform the overall market through the second half of the year. ACCUMULATE
Disclosure: The author is long F. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.