Let me be perfectly candid. I do not own a Ford (NYSE:F) and never have. As far as American auto manufacturers are concerned I am a General Motors (NYSE:GM) guy going back to the 1965 Pontiac Bonneville, 1970 Chevy Nova, and of course the "any year" Chevy Corvette. That being said, I take issue with recent articles that have been popping up of late, actually recommending selling shares in Ford.
I believe urging shareholders to dump their shares of Ford now might be short sighted as well as harmful to longer term investors and I will state my opinion as well as I can. What I will not do is urge anyone to either buy, OR sell their shares of Ford. Personally, I believe if you own shares right now, holding them for the longer term is probably more beneficial to your financial future.
Why I Believe In Ford
First and foremost, the turnaround that Ford has orchestrated has to go down in American industrial history as nothing short of amazing. In a time when every auto manufacturer here in the US had their collective hands out, taking money from all the tax payers and the politicos in Washington D.C., Ford said no thank you.
That might not mean much on the surface now that the dust has settled, but the fact remains that both General Motors and Chrysler (not even a publicly traded company) took handouts and still owe most of it back to us, the tax payer.
Ford has done it on their own. Utilizing every corporate tool in its arsenal, including putting up as collateral the iconic "Blue Oval", which was and still is the standard bearer of one of the most renowned brands in the history of our planet.
Ford struggled to put a line up of automobiles together that has ultimately surpassed even Toyota (NYSE:TM) in terms of market share. Not an easy feat, and truth be told, there had been a bit of "luck" involved when Toyota had some recalls and an unfortunate act of Nature that hampered deliveries of some best selling Toyotas.
Fundamentally, Ford is in better financial shape right now than it has been in the last 3 or 4 years or so. Let's take a look at the numbers from Yahoo! Finance:
- From 2009 to now, net receivables have increased by roughly 35% which bodes well for future earnings
- From 2009 to now, inventories are up nearly 20% which will eventually be turned into cash
- From 2009 to now, long term debt has decreased by roughly 32% which of course makes for an outstanding turnaround in Ford's balance sheet
- From 2009 to now, net tangible assets has improved by over 200%, as well as an improvement of over 200% in shareholder equity
- Retained Earnings have also increased by over 200% as well, remarkable
- Gross profits have increased by over 30%
- Operating income has more than tripled
- Net income has increased 10 fold since 2009
I did not make any of these numbers up folks, they are real, and Ford has done it without my tax dollars. An argument can be (and has been) made that these numbers are not sustainable. That may well be true, but that does not mean that the future of Ford is in doubt or that the share price will plummet back down to the $2.00 range either.
Ford In Our Future
I found this article to be particularly compelling as it stated quite accurately:
Reason No. 1: It's cheap again
Auto stocks have historically traded at around 10 times earnings, on average. At a moment when the economy is on an upswing, that might even be a little cheap, but Ford's stock is even cheaper right now. Ford's current price-to-earnings ratio is around 7.9, meaning there's quite a bit of upside left. Or put another way, there's room for gains even if, as Ford's current guidance suggests, the company's profits in 2012 end up about the same as 2011's.
Something to consider prior to dumping your shares I believe. It continued:
Reason No. 2: The U.S. auto market is trending up
Ford has operations all over the world, but like ancient rival General Motors (NYS: GM) , the U.S. market is the key driver of Ford's profits -- its "engine," as CEO Alan Mulally often says. Ford's auto business generated $6.3 billion in pre-tax profit in 2011, and nearly all of that was attributable to its operations in North America.
Internationally, there are headwinds. Sales have slowed outside of the USA, and the "European Saga" is rearing its ugly head again and Asian sales have slowed. As Mulally says, the U.S. is the "engine". I believe all of the global issues that every corporation faces will be overcome as deftly as all of the remarkable hurdles that Ford has already overcome.
Reason No. 3: Ford's product plan is just now coming together
Mulally's signature achievement since joining Ford in 2006 is the product plan that drove the company's turnaround. Called "One Ford," the essence of the plan calls for Ford to offer a single, consolidated line of top-notch products in markets all around the world. That's a departure from Ford's old way of doing things, when it would develop similar-but-completely different cars for different markets like the U.S. and Europe. With fewer new models to develop, Ford can give each one more attention -- and make updates and revisions more frequently. That means stronger, fresher products, which in turn allows Ford to sell them with fewer "incentives," or discounts. That, in turn, should improve Ford's margins.
Margins, margins, margins. It is amazing that this indicator is often overlooked. To be sure, higher margins on every sale means that a company can make just as much profit, if not more, by selling less product. Not only that, but the company will then be positioned to expand profits exponentially when sales inevitably pick up once again.
Recent earnings reports showed a drop of about 7% in European sales, and they lost money in Asia in part due to the heavier investments made within China for future growth and earning. The past is history, the future is why we hold shares. Do we want to sell the shares in the present?
Take a look at this related article as it stated:
Ford's strength at home comes from the product approach it adopted when CEO Alan Mulally first joined the company in 2006. Called "One Ford," Mulally's strategy is deceptively simple. In the old days, before Mulally, Ford's different operations around the world developed their own lines of products, tailored to local tastes. But not anymore: Ford now focuses (so to speak) all of its product-development efforts on a single, simplified line of cars and trucks, which it sells (with some local variations) all over the world.
That means Ford has fewer products to develop. That, in turn, means Ford can put more effort and money into developing every one, which results in better products that compete better with rivals like Toyota and Honda (NYSE:HMC). It also means that Ford can sell those products at premium prices, with fewer discounts.
And, because Ford has fewer core products, it can replace them more frequently with improved models, keeping its place at the top of the competitive heap.
I completely agree with this opinion and Mulally's strategy, which of course bodes well, not poorly, for the Ford in our future. Still want to dump your shares?
The article ends with:
The upshot for Ford is pretty simple: In many ways, the company is doing better than it has in decades. Its cars and trucks are top-notch, and it's making very good money on them. To the extent that it's having trouble, it's because of things the company can't control, like the European economies.
Long story short, as the world's economies continue to improve, Ford is well positioned for success.
I could not have said it any better myself, except to say that if you sell Ford shares now, as some might urge, you might be missing out on the Ford in YOUR future.
I will not, nor will I ever urge anyone to buy or sell any security. I will offer my opinion as best as I can, and give food for thought to all investors, shareholders, or potential shareholders. That being said, I believe that owning shares of Ford at current prices could be worth significantly more in the long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.