Manly Stock Wars: Harley Davidson Vs. Ford

| About: Ford Motor (F)
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In today's bout, we're pitting bikers against pickup truck drivers: Harley Davidson (NYSE:HOG) versus Ford (NYSE:F).

Regardless what you have parked in your garage, don't rush to judgment on the investment-worthiness of either stock. After all, just because we personally own something doesn't mean that it's a great investment.

Instead, I recommend waiting until we get to the end of our blow-by-blow fundamental analysis to determine which stock represents the more compelling income investment right now. The results might surprise you.

So without further ado…

~ Round 1: Steady Demand

Neither company can claim to be recession-resistant. Vehicle sales are cyclical and get hit pretty hard when the economy slumps and credit standards tighten.

Case in point: Ford's sales dropped 31%, thanks to the recession. And the stock followed suit, plummeting 66% in 2008 alone. Although Harley Davidson's sales fell only 16% during the recession, its stock got hammered, too, falling 60% in 2008.

The good news is we're on the right side of the cycle. Demand's picking back up.

Since motorcycles are purely discretionary purchases, though, whereas the iconic F-series trucks are also the most popular vehicles for small business owners, Ford's sales promise to snap back quickest and the most. And that's precisely what's happening.

In November, F-Series sales increased 18% year-over-year, marking the sixteenth consecutive month of year-over-year increases. And the company's on pace for its best year since 2007. Meanwhile, Harley Davidson's third-quarter sales actually declined year-over-year, after increasing for the first two quarters of 2012.

Advantage: Ford

~ Round 2: Cash Flow Positive

A motorcycle might be able to toast a pick-up truck in a street race, but Harley can't hold a candle to Ford's cash flow generation.

In the last year, Ford generated over $4 billion in free-cash flow, which is enough to cover its dividend almost six times over.

By comparison, Harley only generated about $500 million in free cash flow, which is enough to cover its dividend about four times over. Not bad, but not good enough to beat out Ford.

Advantage: Ford

~ Round 3: High Cash Balance

Given such strong cash flows, it's no surprise both companies have been able to stockpile cash.

Harley's sitting on more than $1 billion, which is enough to cover 33 quarters' worth of dividend payments. Impressive, until you realize Ford's $4 billion in cash would cover 126 quarters' worth of payments.

Advantage: Ford

~ Round 4: Minimal Need for Credit

Both stocks fail miserably when it comes to the need for credit. They can't live without it. Harley's saddled with almost $6 billion in liabilities and Ford's weighed down with $100 billion. The only reason they can handle such debt loads is because of the tremendous cash flows each business generates.

Advantage: Draw

~ Round 5: Earnings Buffer

Just as cash can provide a buffer, so can earnings. Harley's sitting pretty with a dividend payout ratio (DPR) of 22.4. But Ford boasts an even bigger buffer with a DPR of just 3.4.

Advantage: Ford

~ Round 6: Dividend Yield and Growth

Paltry would be the best way to characterize Ford's dividend yield and growth. At current prices, the yield checks in at just 1.8%. And as far as growth, there's very little to speak of.

From 2002 to early 2006, Ford paid a quarterly dividend of $0.10 per share. Then Ford cut it to $0.05 for one quarter. And then management got rid of it entirely, only to reinstitute the dividend this year.

On the bright side, I guess we can say that after a five year hiatus, there's nowhere for Ford's dividend to go but up from here.

Moving onto Harley, it sports an even more pathetic yield of 1.3%. But at least it's growing, up 25% in 2011 and 24% in 2012.

Dividend growth always wins out, particularly when we're dealing with sub 2% yields.

Advantage: Harley Davidson

~ Round 7: Valuation

At current prices, Harley trades at a price-to-earnings (P/E) ratio of 19, which is a premium to both the industry (16.9) and the S&P 500 index (15.1).

In comparison, Ford trades at a P/E ratio of just 2.6, which is well below the industry (8.1) and the S&P 500.

Advantage: Ford

Let's go to the scorecard…

After seven rounds, Ford wins due to its cheap valuation, obscenely low DPR, strong sales momentum and increased leverage to the economic cycle.

And even despite Ford's recent showing of an uptick in sales - new vehicle sales were up 1.9% in December - let's not be fools. Neither company stacks up as a particularly compelling income opportunity. So being declared a winner here might be nothing more than a precursor to being declared an also-ran in our final matchup.

Safe investing,

Louis Basenese

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.