Love Their Cars? Buy the Stock First!
Golok is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Stealing a man's wife, that's nothing, but stealing his car, that's larceny.
We all love cars, don’t we? Nope I am not here to sell you a car but our beloved company that has been making dreams come true for car lovers.
Ford (NYSE: F) is the second largest U.S. automaker by market share and carries a dividend yield of 3.1%. Ford has strong and committed management, and we must remember that it is the only American automobile manufacturer who chose to slog it through the 2008 recession without government bailout funds. Ford reinstated its dividend payments at $0.05 per share in January 2012 and just doubled distributions to $0.10 per share with the January 2013 payment. This policy clearly shows an intent and confidence of management to signal a return to reliable dividends and further growth. Last quarter, Soros reported owning nearly $41 million worth of the stock.
By taking a look at the company's valuation relative to peers, we'll be able to determine which one might be the least expensive. In terms of present valuations, Ford (P/E 8.67) appears to be the clear winner when compared to General Motors' (NYSE: GM) 9.48 and Toyota Motor’s (NYSE: TM) 19.72. Another important point is that Ford has a PEG ratio of 0.85 while GM and Toyota have 0.79 and 0.45, respectively. When we look at dividends, GM doesn’t pay any which leaves us with Ford and Toyota. So that only leaves Ford and Toyota, with a 3.08% and 1.33% yield respectively. Ford boasts a payout ratio of 4.33% while Toyota sports a 24.7% payout, this leaves Ford with lots of room to increase their dividend payout for the next few years if macroeconomic challenges don't change things dramatically.
Solid Fourth Quarter
Ford Motor posted strong quarterly results. For the fourth quarter, the company earned 31 cents per share, which was six cents per share more than expectations. Ford reported a 54% jump in its fourth quarter profit from a year ago, which is definitely far better than the Street expected. The wholesale volume surged 7%, as a result of which total revenue for the quarter went up by 5%. The company has managed to achieve an operating profit for the 14th consecutive quarter, which is indeed a remarkable achievement.
The company performed astonishingly well, reporting automotive sector profit of $1.3 billion from North America, South America, and Asia Pacific. In the Asia-Pacific-Africa region, surging sales in China triggered the 41% increase in wholesale unit volume sales during the quarter. Thus while Japanese automakers like Honda and Toyota, who held over 20% of the Chinese automobile market, are suffering due to the recent disturbance between the two countries, Ford cashed in on this opportunity and rapidly captured market share. There is strong pent-up demand in the U.S. as the aging vehicle fleet hit the record-high average age of 11.3 years in January 2013. Ford predicts that U.S. sales could grow as much as 8% in 2013.
According to industry analysts, light vehicle (car) sales are projected to increase from 14.47 million in 2012 to 15.42 million this year, a year-over-year gain of 6.6%. The truck market is expected to undergo a gradual shift from large pickups to light trucks and SUV’s due to high gas prices, however higher construction activity and infrastructure spending should keep truck demand relatively high.
Ford has undertaken “One Manufacturing” strategy, which aims to produce multiple models from plants across the world in order to save production costs and speed adaptation to changes in consumer tastes. The automaker anticipates producing 4.5 models at each of its plants by 2015, up from 3.6 models currently.
Strong pent-up demand due to aging vehicles on U.S. roads along with the falling unemployment rate have been key factors in driving auto sales in the U.S. Additionally, the Asian countries, especially China and India, are expected to account for 40% of growth in the auto industry over the next five to seven years being the rapidly growing economies. According to Global Insight -- a U.S. based provider of economic and financial information -- 14.7% of growth is expected to come from India and 8.3% from China by 2013. The United States government, partly in co-ordination with other governments around the globe, has invested trillions of dollars and a great deal of political capital to keep economies from slipping back into recession, to stave off deflation, and to hold onto jobs. Clearly this commitment remains and it is virtually impossible to envision the current administration allowing a major U.S. auto company failure anytime in the next four years at least.
In conclusion, Ford is a solid buy right now for investors seeking a good dividend yield (3.1%) and likely dividend growth to come in the future. Ford has an immensely enhanced reputation with existing and new customers and this is mostly due to the way the company has conducted itself over the years. As the economy improves over the coming years and as consumers who have put off car purchases start buying again, this stock will surely drive your portfolio higher.
Golok911 has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!