Ford: A Buy On Auto Demand Alone

| About: Ford Motor (F)

Ford Motor Company (NYSE:F) primarily develops, manufactures, distributes, and services vehicles and parts worldwide. It operates in two sectors, Automotive and Financial Services. The Automotive sector offers vehicles primarily under the Ford and Lincoln brand names. This sector markets cars, trucks, and parts through retail dealers in North America, and through distributors and dealers outside of North America.

Ford is one of the largest auto manufacturers in the world. Not too long ago, Ford was a company on the brink of bankruptcy. However, with its fantastic management team led by Alan Mulally, it was able to turn itself around without any taxpayer support.

Auto demand has been very strong. Companies like General Motors (NYSE:GM) have been benefiting as well, while companies like Toyota Motors (NYSE:TM) are seeing a slowdown in growth. I think this is primarily because these American auto companies are building cars for consumers rather than building them for profit. They are starting to listen to the average American. Ford is making much more fuel efficient vehicles.

More Ford fuel economy stars include:

  • Ford Mustang V6: Its high-revving 305-horsepower 3.7-liter V6 engine and six-speed automatic deliver best-in-class highway fuel economy of 31 mpg; Mustang V6 is the first car in history to deliver the combination of 300-plus horsepower and more than 30 mpg.
  • Ford F-150: Its 302-horsepower 3.7-liter V6 engine and six-speed automatic deliver a best-in-class 17 mpg city and 23 mpg highway – an EPA rating Chevrolet Silverado and GMC Sierra can’t top. The 3.7-liter V6 is one of four all-new truck engines in the 2011 F-150 lineup.
  • Ford Fiesta: The combination of a 120-horsepower 1.6-liter four-cylinder and available six-speed dual-clutch PowerShift automatic transmission delivers 40 mpg on the highway, topping Toyota Yaris and Honda Fit by 4 mpg and 5 mpg, respectively.
  • Ford Super Duty: The Ford-designed and Ford-built 6.7-liter Power Stroke® diesel engine delivers as much as 20 percent better fuel economy than the 6.4-liter it replaced. The new Power Stroke isn’t just fuel efficient, it’s also the most powerful diesel pickup engine money can buy, rated at 400 horsepower and 800 lb.-ft. of torque.
  • Ford Edge: With its 3.5-liter V6 and six-speed automatic, Edge delivers 19 mpg city and a best-in-class 27 mpg highway. The upcoming 2.0-liter EcoBoost engine in the 2012 Edge is expected to deliver even greater economy.
  • Ford Fusion Hybrid remains America’s most fuel-efficient midsize family sedan, topping the Toyota Camry Hybrid by 10 mpg in the city, according to the EPA.
  • Ford Escape Hybrid, Transit Connect, Ranger and Lincoln MKZ Hybrid also lead their segments with the highest fuel economy.

Four of Ford's cars already meet the EPA-certified ratings by achieving 40 mpg.

(Click to enlarge)

(Click to enlarge)


As you can see from the graph above, Ford has overtaken Toyota in number of units sold. GM still maintains its status as the largest simply due to the number of brands it holds. Ford has been fairly consistent with its growth. If you pull up the recent auto sales reports, you will see Ford continuing to grow while its Asian counterparts like Toyota slow down.

I love the fact that there has been a revival in the American auto industry as these companies start getting back to their roots. I see Ford benefiting the most partially because of its valuation and it also doesn't have the issue of restructuring from Chapter 11 that GM has.

Ford has a low forward P/E of 5.59. The company is substantially paying off its debt. The fact that Ford is trading at this multiple is surprising and it is difficult to understand why the market is discounting them so much. I think Ford's best days are still ahead. I even see Ford paying a dividend soon. With Alan Mulally on its side, it should continue to do great things.

Disclosure: I am long F.