Ford: Expect Big Gains In 2012

Mar.15.12 | About: Ford Motor (F)

The success of the United States auto industry bailout has put General Motors (NYSE:GM) in the spotlight, as it returned to its former place as the largest automobile manufacturer in the world. However, the stir that has many consumers and investors focused on General Motors has diverted a lot of attention from the success of Ford Motors (NYSE:F), which has rebounded and gained momentum without any federal assistance. In my opinion, Ford's ability to recover without the assistance of federal funds shows resilience and makes me believe that it has much more potential, as Ford eyes General Motors in its own quest to become number one.

Prior to the auto bailout, Toyota Motors (NYSE:TM) cornered the market through the production of affordable and efficient automobiles that catered to the needs of consumers looking to respond to rising gas prices. The American auto industry has made up a lot of ground since the auto bailout, but Ford made innovations on its own that allowed it to compete with Toyota with the Ford Focus and Ford Fusion Hybrid, which are both capable of reaching an efficiency over 40 miles per gallon.

In 2012, Ford plans to release an electric version of the Focus to compete with cars such as the Chevy Volt, the Toyota Prius and other hybrid and electric cars on the market. Due to increased demand for the Ford Focus and Fusion, Ford has added shifts and opened another factory in order to anticipate the growing demand for its new line of fuel efficient vehicles. The initiatives by both Ford and General Motors to create more fuel efficient vehicles are what ultimately contributed to Toyota's fall from grace away from the number one position in the auto industry and is what has Toyota on its heels as it battles pressures in Japan that have crippled its ability to maintain production in the wake of the tsunami that resulted in a nuclear meltdown at the Fukushima Daiichi power plant.

In February, Ford sold almost 180,000 vehicles, which was an increase of 14% compared to last February. The Ford Focus contributed to about 40% of Ford's sales growth with over 23,000 Focuses sold last month. In the second quarter of this year, Ford plans to build 730,000 vehicles as it anticipates increased demand both in 2012 and 2013. Rising gas prices have been extremely influential in the migration of consumers to fuel efficient vehicles from SUVs and other less fuel efficient vehicles.

General Motors sold just fewer than 210,000 cars in the month of February, pulling Ford within striking distance. Ford only needs to make up a gap of 30,000 cars in order to overtake General Motors, and I believe that most people don't realize the kind of momentum that Ford has behind it.

Ford's year-to-date sales are up by over 11% this year, compared to a 10% boost to Toyota's sales and a drop of 2.2% in sales for General Motors. In my opinion, Ford is quickly positioning itself to overtake General Motors, and it is doing so without much attention, as General Motors receives attention from investors and the media alike due to its turnaround. At the moment, Ford is severely underpriced, and I believe that the market is going to correct itself soon to the benefit of Ford shareholders.

Over the last three years, Ford stock rose from $6 per share to $18 before falling back to $12, where it has evened out. It is solidly above its six month moving average and if it reaches $13 per share, it will be flirting with its one year moving average. I believe that Ford will continue to surprise the public by beating sales expectations each quarter, and when it breaks $13 per share, it will take off quickly.

In January, Ford released a dividend for the first time in six years, proving that it has recovered, and now has some value to offer its shareholders. The payout of $0.05 per share only provides a yield of roughly 1.6%, but it also provides the opportunity for future payouts when Ford sustains its growth over the next several years. I believe we can expect Ford to payout more often and to increase its payout often as it begins to challenge General Motors for the number one position in the auto industry.

What impresses me most about Ford Motors is that it was able to create a recovery for itself without any assistance, and its results were similar to that of General Motors after it received a bailout. If Ford was able to recover without assistance, it is fair to assume that it could have been in an even greater position if it had chosen to accept the funds offered. Because General Motors needed the bailout in order to make its recovery, I think that Ford is ultimately going to prove that it is the most resilient of the American automakers. All three American automakers are going to succeed in the coming years, but I think that Ford Motors is going to do just a little better than the others.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.