Ford Motor Company (NYSE:F) has excelled at making cars since 1903. It was the first company to embrace the assembly line concept which revolutionized car making and enabled production on a large scale. It is the second-largest US automaker behind General Motors (NYSE:GM) in terms of annual sales.
Ford is a very strong company. It was one of the few companies to survive the Great Decession back in 1929 and, in the recent recession, was the only one of the 'Detroit Three', Chrysler, General Motors, and Ford, not to receive a government bailout.
This beloved company has managed to turn itself from a wrecked, destitute company in 2006, to one of the most profitable automakers in 2012. This remarkable turnaround should be a signal to investors that Ford is headed in the right direction.
Why buy Ford?
Simply put, Ford is dirt cheap when compared to the industry. It has a P/E ratio TTM of just 2.3, versus an industry average of 9.1. Its price/sales ratio is 0.3, the industry's average is 0.4. It is also much more profitable than the larger industry recording a net margin TTM of 14.1% against an industry average of 5.4%. What really puts the nail in the coffin is the return on equity. Ford's ROE TTM is 200.3%, this is due to the unprecedented overhaul of the company which has just been completed. In the same time the industry has returned just 14.9% in equity to investors.
Also, Ford's brand is incredibly attractive to consumers. Ford was the best selling brand in 2011 with over two million sales. This was a 17.4% increase on 2010. Therefore, as the economy in the United States recovers from the depths of recession, Ford looks set to become much more valuable. Consumers will flock to buy new cars as the economy improves and unemployment falls. These consumers will be very attracted to Ford due to its strong brand image and great product line. Five of Ford's vehicles are ranked at the top of their categories and fourteen are ranked in the top three.
Ford's board of directors is a remarkable team. Although the CFO and the head of Global Product Development both left recently, the company knew about these departures for a long time and have replaced them with worthy successors. The board of directors managed what seemed like the impossible in 2006 - they brought Ford's finances back from the brink, and created a manageable balance sheet. In 2006, Ford reported a loss of $12.7 billion, the largest in its history. However, by the end of 2007 the company had brought this down to just $2.7 billion. At the end of 2011, Ford reported a net profit of $20.21 billion. This remarkable turnaround was engineered by the new CEO at the time, Alan Mulally, who is planning to stay at Ford, and the rest of the board of directors. Consequently, the board alone should allow investors to invest in Ford confident of success in the future.
The company's growth in expanding markets should not be played down either. Ford is already well positioned in Russia and India while expanding into China and the rest of the Asian marketplace. The One Ford plan aims to use a global platform to develop new models to tackle the different marketplace. This global platforms will provide important synergies and allow Ford to cut costs through using common parts to make vehicles. Ford's global focus should not be underestimated. Cars like the Ford Focus sell globally.
Perhaps the most enticing reason to invest in Ford is that it is better positioned than General Motors. GM still is the world's largest automaker in terms of annual sales, however, Ford has a much stronger bottom line and a much stronger product line than GM. Ford did not have to except the government bailout whereas GM did, and consequently is still far behind in its transition back to competitiveness. Ford made almost three times the profit that General Motors did in 2011.
However, Ford is facing increasing competition on a global scale from Toyota and other leading automakers which might hamper its growth as it seeks to expand. Nonetheless, Ford has taken some important cost cutting measures which will allow it to price its products effectively to keep up with the global competition. It also plans to focus on green, more fuel-efficient vehicles which will help it to balance its portfolio allowing more global expansion.
At $10.66 per share, Ford is a strong buy in my opinion. Morningstar rates its fair value at $23.00 per share, and rates it as a solid buy at any price below $13.80. Morningstar also gives Ford its coveted 5-star rating. The conservative Five Year Growth Forecast for Ford is 14.8% which provides a glowing opportunity for investors, especially in these uncertain economic times. The Motley Fool rates Ford as a 4-star stock and out of 20 Wall Street Analysts on the site who rated Ford, 16 said Ford would outperform the market, and only four said it would underperform.
If I've missed anything please comment and I'll update it. All my data is from morningstar.com.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.