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On Friday, Ford (F) released their Q4 earnings to much disappointment, missing earnings per share by $0.05. The fickle market knocked 77 cents of the share price, opening at $11.96, providing the savvy investor the opportunity to pick up shares at a relative long run discount, as they will be trading at $15.00 a share or higher by year's end. Below are the reasons I believe ford is a good long run buy:

The Federal Reserve's announcement of commitment to short term interest rates near 0% until 2014

Ford is heavily indebted when compared to General Motors (GM) and other domestic and foreign rivals. Ford CEO Alan Mulally tapped the credit markets right before the great freeze. Ford Currently has 215.428 million in outstanding callable bonds with coupon rates ranging from 6.520% to 12.250%. Couple this ability to refinance debt at lower interest rates with a credit rating that is on the verge of regaining investment grade and Ford will be seeing a continuation of this debt reduction trend. Ford's interest expense has dropped from $10,927 million in 2007 to $4,959 million in the past 12 months. This trend should continue to accelerate.

New pay structure

Ford management has found a way to continue the two tier pay structure instituted at the height of the crisis. United Auto Workers have agreed to a pay structure that will allow Ford to pay the newer plant employees significantly less than the older generation of workers. While this is obviously not in keeping with Henry Ford's high pay structure, it is good for shareholders. As the older workers retire, they will be replaced with individuals working at a lower wage, reducing long run cost.

The American Moat

As the presidential debate heats up, the focus will remain on American Jobs. The domestic auto market was penetrated successfully by foreign counterparts because America was manufacturing large SUV's and her plants were tolled for such cars, while gas prices skyrocketed. Ford successfully used the credit markets to finance retooling of their plants. Of many such examples, Ford revamped their Michigan Assembly plant, originally designed for large SUV's, to produce the new Ford Focus along with the electric Focus. While this cost Ford $950 Million, the company is now competitive in the fuel efficient market, eliminating the edge foreign companies held. Ford will also triple its EcoBoost production capacity in 2012, offering 11 vehicles with the engine, when compared to the seven offered in 2011. This will allow Ford to offer at least nine vehicles with an anticipated 40 MPG or more in 2012.

This increase in fuel economy will prove to be a perfect storm for Ford: just as the production ramps up at retooled factories, Ford is retiring its debt, emerging as a nimble and adaptive company. Ford will be competing with equal or better footing for Americans who have historically supported domestic companies and industries in times of economic crisis. While Ford may not regain its heyday domestic market share, it is steadily increasing, even in the European market. Ford sold 129,200 vehicles in its traditional 19 European countries, with sales in Germany rising 20.4%.

Dividend

Ford recently announced a resumption of its dividend of 5 cents per share, reflecting the management's confidence in Ford's improving financial position. While this is old news, professional money managers will now pay attention to Ford stock as it will offer their more risk averse clients a sense of protection. This will reduce the wild swings in the stock price, lessening the opportunity for myself to gobble up cheap shares.

Conclusion and Recommendation

Even though US GDP grew at an annualized rate of 2.8% in Q4 2011, the world economy still faces strong headwinds from Europe and potentially skyrocketing Oil Prices if Iran closes the Strait of Hormuz. Fortunately Ford is well positioned in the United States and abroad with fuel efficient cars and the production to match the demand that has been pent up from the prolonged economic recession, as America's fleet of cars continue to age, averaging 9.4 years old. That is why I am buying at current market prices.

Source: Why I Am Still Long Ford