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Donald Yacktman, one of my favorite value investors, has an adage I wholeheartedly agree with:

It's almost always about the price.

Given a long enough period, the market will always overreact, either to the upside or the downside, on specific stocks. One such stock is Ford (F). Ford certainly has struggles, mostly with the awful European macro situation, but it's so cheap right now that the macro situation can largely be ignored. Any investor with a 5-10 year timeframe should be jumping on the chance to pick up Ford shares. Even if the European situation doesn't improve much, to paraphrase a statement Yacktman made about Cisco (CSCO), it's trading at such a low multiple that robust cash flows are hardly required.

The Valuation

Trefis believes Ford's fair price is $15.92, representing 70% upside to the current price. (For their full Ford model, click here.) According to Thomson Reuters, as of 7/31/2012, mean analyst consensus for 2013 earnings is $1.52, giving Ford a forward P/E just a few basis points above 6. With Ford paying a 5-cent quarterly dividend (good for a yield of roughly 2.2%), I'm happy to hold the stock and wait for it to return to fair valuation.

The Good

After nearly going bankrupt, Ford has staged an impressive comeback over the past few years. Sales in America are strong:

Ford Motor Company's U.S. retail sales increased 2 percent in July versus year-ago levels, driven by strong retail customer demand for fuel-efficient vehicles.

Ford has seen particular success with fuel-efficient vehicles. By year end, Ford will offer eight cars with 40 miles per gallon or better. The transition towards aluminum in place of steel should, if successful, continue this trend. With economic uncertainty and high gas prices, consumer preference for fuel-efficient vehicles is especially strong, so this should continue to be a driver for Ford.

The Bad

Ford's South American division is barely breaking even, Asia/Pacific is losing money, and Europe is positively hemorrhaging cash - all reasons why the stock's valuation has been depressed to the extent that it has. Until the macro backdrop becomes more favorable, these problems are likely to persist. Nonetheless, Ford CEO Alan Mulally has tackled tougher problems, and Ford's new platform strategy will enable it to cut costs and sell cheap vehicles in emerging markets.

Conclusion

Ford is well-managed and strategically well-positioned. Unfortunately, the macro environment is not kind to automakers. In spite of that fact, I believe that Ford represents a tremendous value at the current share price, and will provide very solid returns going forward. Ford may have a few tough years ahead, but with the stock price so low, it doesn't need stellar earnings to see upside.

For a comparison of Ford with other automakers like General Motors (GM), see Ford Motor Company Still Moving Forward, Despite Macroeconomic Headwinds by Saibus Research.

Source: Ford: Tough Track But Very Cheap