Is Ford Still A Buy At $15?

| About: Ford Motor (F)

Is Ford (F) a Buy?

Fords sales have continued to do well, despite the slow growth in the economy and worries about Ford's large exposure to the European weakness. The stock has made an amazing run since its low in the midst of the financial crisis, climbing from as low as $2 to a current price of around $15. Ford's pre-tax profits have reached their highest level in over a decade. A large portion of this growth has resulted from increased market share in Asia, particularly China.

Reasons to Buy

In terms of valuation, Ford is currently ranked with a Price-to-Earnings (P/E) ratio of 9.8, which is less than the market as a whole. To put this number into further perspective, Ford's Price-to-Earnings ratio in relation to its growth rate (PEG Ratio) is .57, which makes it extremely undervalued. Ford also pays a 2.8% dividend yield.

The ultimate catalyst for Ford is its tremendous growth. According to the recent sales report, Ford's sales have grown 14%, versus 3.1% growth for General Motors and 4.5% growth for Honda. When weighing Ford against other potential investments, Ford's excellent growth, superior innovation, increasing quality and fuel efficiency, as well as excellent financial ratios make this stock an excellent choice for a well-diversified portfolio.

What About Toyota (TM) and Honda (HMC)?

Ford's latest lineup is competing in the automotive marketplace quite well. They are introducing new hybrid models, and have increased their fuel efficiency and reliability in order to compete with the imports. These two factors, fuel efficiency and reliability is what led to Ford's troubles in 2008, as their quality had decreased, and their fuel efficiency couldn't compete with imports. Things have turned around in recent years though, with Ford receiving more initial quality awards from J.D. Power and Associates than any other brand in 2011. With Alan Mulally as CEO since 2006, I think Ford is finally moving in the right direction.

What About Europe?

Things in Europe are still far from perfect, but this does not necessarily mean that Ford stock is done. Volume is down in Europe, and this is sure to beat Ford's bottom line for the time being, but ultimately this problem will be temporary and worthwhile for a patient investor. In regards to the near term, growth in Asia and North America should help offset the losses caused by the European crisis.

Time To Pull the Trigger?

Whether or not to pull the trigger on Ford ultimately depends on your tolerance for risk. I see Ford as a potential buy, but not until a major pullback occurs. I think Ford is definitely on the right path, and has come a long way from its troubled days, but has simply had too fast of a run to risk buying at these levels. Long term, Ford has some significant upside. According to plans, restructuring should continue, as well as cost cutting and continued innovation. Over the course of the next few years, Ford could see a nice run up, potentially offering significantly higher return versus the S&P.

Please note all ratios are based on a recent price of $14.27, courtesy of Value Line Investment Survey.

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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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