Should Investors Sell Ford?

| About: Ford Motor (F)
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Since reaching a share price of $17.68, Ford (NYSE:F) has been seeing more down days than up days. Now that the stock price fell below $16, many investors are worried and they are wondering if they should sell their shares. In this article, I will discuss whether it makes sense to sell Ford at the moment.

Last summer, when Ford was trading below $9, I wrote an article saying that "it's time to back the truck up to load up on Ford." Since then, Ford nearly doubled and many skeptics started to jump in the Ford bandwagon. Last summer, many analysts were saying that Ford would go down to $7, and this summer, the same analysts suggested that Ford would go up to $40 and beyond. Obviously, investors would be much better served if there is moderation in analyst estimates rather than jumping from extreme-skepticism to bandwagon-behavior.

Having said that, it's time to take a realistic look at Ford and how the company is doing. Obviously, Ford as a company isn't doing any worse than how it was doing a few weeks ago. Last month, the city of Detroit announced that it would file for bankruptcy, which might have spooked some investors, but it will have pretty much no effect on Ford because the company operates globally and the collapse of one local government can't really hurt it in a meaningful way no matter how close that government is to the company's headquarters. Besides, Ford is headquartered in Dearborn which is a suburb of Detroit-metro area; however, it's a separate city from Detroit.

Last month, Ford's unit sales were up by 11% compared to the same month a year ago. Lincoln sales were down by 0.8% and Ford's own brand sales were up by 11.9%. Interestingly enough, most of the growth came from trucks (20%) and SUVs (9%) while cars grew modestly (4.4%). The company's sales figures were comparable to pre-recession levels, signifying end of an era. Meanwhile, when Warren Buffet's Berkshire Hathaway announced increasing its stake in General Motors (NYSE:GM), a number of Ford investors got concerned because a legendary investor was picking GM over Ford. While Warren Buffet had his own reasons for picking GM, this doesn't mean that Ford is an inferior investment.

China continues to be a strong spot for Ford. Last month, the company saw a 71% growth in its sales in the country where it posted a net profit last quarter. In the first seven months of the year, Ford sold 480,555 vehicles in China, which is up 50% from last year's 320,000 units during the same period. Ford usually uses most of its Chinese profits towards investments in order to grow its foot print in the country. The company has several ongoing partnerships and it's been expanding its production capacity as well as the dealership network for the last few years. While Ford entered the Chinese market much later than GM, it has made a lot of progress in the last couple years and there is still plenty of room for Ford to grow in the country. The company's CEO Alan Mulally recently said that he wasn't worried at all about the slowing down in the Chinese economy.

A couple weeks ago, the Euro zone was announced to be out of recession even though it's not out of the woods yet. Europe is one of the weakest markets for Ford but the company expects to be profitable there by 2015 regardless of the economical circumstances. This is another market where Ford has scored impressive improvements; however, there is still a lot of work to do in the continent.

It's interesting to note that even though most of Ford's growth (and profit margins) came from trucks and SUVs, the company also made a lot of progress with fuel efficient vehicles such as Fiesta. So far, Ford hasn't responded to the "Teslamania" (NASDAQ:TSLA) in the same way as other car producers did. For example, BMW came up with its own electric car and GM is working on improving its electric car. Ford is leaning towards building hybrid cars while reducing the fuel consumption of its vehicles that are running on gasoline. Also, Ford is currently working on a natural-gas powered version of its F-150 truck. So far, the company has made a lot of progress in making its vehicles as fuel-efficient as possible. I like the idea of electric cars and everything; however, by the time electric cars become mainstream, the gasoline cars are likely to become so fuel-efficient that they are pretty cheap to run after all (at least in the US where gasoline is relatively cheap). Just in the last 10 years, many gasoline cars improved their fuel-efficiency by 50% (for example Ford's small SUV, Escape). As of right now, Tesla doesn't seem like a threat to Ford but there is no guarantee that things won't ever change.

Currently, Ford trades for 10 times its earnings. Excluding cash, Ford is trading for about 8 times its future earnings. By 2015, Ford is expected to pass $2.00 per share in earnings and the expectations go as high as $2.35 depending on how the company performs in Europe. It looks like the Ford story is still going on and there was very little reason for a sell-off. The company's recent sell-off was mostly due to the concerns regarding the macro market as well as some profit taking. I expect Ford's rally to continue once some of the macro issues are cleared off. Currently, Ford's dividend yield is 2.50%, which can provide support for the company's share price while paying patient investors for being patient.

Currently, the average price target for Ford is $19, with price targets going as high as $24. I am holding onto my Ford shares and I plan on adding some long-term calls to my portfolio to boost my return. I got in Ford when it was trading below $9 so I am pretty much playing this on the "house money" for the time being. In conclusion, the investors should not sell their Ford shares because the Ford story is still intact.

Disclosure: I am long F. 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.