Ford Is Still a Buy Even At a 52-Week High

Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Note: A previous version of this article incorrectly referenced Ford's long term debt. The correction has been made below.

Ford (NYSE: F) has strong momentum going forward after announcing that it plans to hire as many as 2,200 new salaried workers in the U.S. this year. The company also announced that they will be doubling the payout ratio of their dividend. Even after the seemingly good news and celebratory capital appreciation, Ford still appears undervalued:

<table> <tbody> <tr> <td> </td> <td>Price</td> <td>Price/Earnings</td> <td>Forward P/E</td> <td>Debt/Equity</td> <td>Dividend</td> <td>Yield</td> </tr> <tr> <td>Ford</td> <td>$14.30</td> <td>3.2</td> <td>9.79</td> <td>5.33</td> <td>0.4</td> <td> <p>2.80%</p> </td> </tr> </tbody> </table>

Data from Forbes and Ycharts

Not only that, Ford has many positives that should help it gain, and also sustain, momentum going into the future.

The good news

Besides strong brand recognition, Ford also has top-notch management. CEO Alan Mulally is one of the best in the business, and has a large part in the company's recovery and vision with his "One Ford" Plan. Mulally recently stated that, "We don't manage for everyday stock prices. We manage for long-term value creation..."

Ford's recent dividend increase, however, is a strength for everyday stock prices as well as long-term value creation; because a near to 3% yield should help to put a floor on the share price and generate income for investors. Solid management, new hiring, and the doubling of the dividend signal a comeback for the company that is not only the real deal- but here to stay. Another strong signal of the company's sustainable comeback is the company's sales growth- up 4.7% in the U.S. for 2012, with December bringing the company's best sales results since 2006. In fact, Ford was the only brand to sell over 2 million vehicles in the U.S. last year.

The bad news

One glaring weakness for Ford is its debt. The company currently owns a debt to equity ratio of over 5, with long term debt totaling over $13 billion, as of Sep. 30, 2012. The company has been working to reduce this debt, however, and has successfully had its debt rating increased from "junk" status to investment grade. The upgraded debt rating was a huge financial milestone for the company, but Ford still has considerable liabilities, which could

be a concern going forward- especially if the economy goes south and auto sales decline rapidly. Although apparently getting better, sluggish sales in Europe may still be a thorn in the company's side for some time as well.

The potential

Ford has many opportunities in emerging markets. The company saw a record 21% jump in sales to Chinese customers for 2012. Ford India saw not only record exports for December, but also a 9% year-over-year jump in domestic sales. Sales in Russia also spiked 11% in 2012. Increasing automobile demand in emerging markets provides an opportunity ripe for the taking, and Ford is capitalizing on this opportunity.

Ford is also pioneering in-car connectivity systems, with its SYNC platform that it developed with Microsoft. Ford is the first automaker to open its infotainment apps platform to developers as well. Microsoft and Ford delivered their 5 millionth SYNC-enabled car in November. Sensing the tremendous opportunity presented by the concept of cloud-connected automobiles, such as Ford's SYNC-enabled vehicles, the company's closest competitor, General Motors (NYSE: GM) is also getting into the game. Like Ford, GM is looking to incorporate new technology into old- creating an infotainment platform open for developers. GM's system will rely on touch, as opposed to the voice-activated SYNC platform found in Ford models. Integrating mobile apps and connecting cars and devices through cloud-computing is a futuristic trend that Ford has a sizable head-start in: especially with a tech-savvy partner like Microsoft.

The potential problems

Perhaps the biggest threats to Ford, due to its cyclical nature, are economic slowdowns- especially global ones. If inventories begin to pile up, it might mean trouble for the cyclical Ford, but currently sales are sustaining sizable growth for the company, even in sluggish economies. This could rapidly change if recession kicks in, whether it is global or even just domestically here in the States. Even though Ford has significantly strengthened its balance sheet and is moving full-speed in the right direction as a company, that large chunk of debt on their books will look much uglier if the economy stinks. Keep in mind that even though the "fiscal cliff" was temporarily averted, congressional debacles (such as the debt ceiling debate) leading to uncertain and panicky markets are still looming. Shaky markets could be very bad for recovering companies like Ford.

The bottom line

Ford is moving along with strong momentum and a full-head of steam. Sales are good, the balance sheet is getting better and better, and management is strong- all of which is leading to increasing shareholder value. The recently doubled dividend should not only put a floor on the share price going forward, but also provides investors with a worthwhile stream of income. Increasing dividends and hiring show that the company is confident that it is capable of thriving in the times ahead.

Economic uncertainty or even recession are always threats to cyclical stocks, but Ford looks like it has positioned itself to weather future storms. The 52-week highs that Ford has recently been achieving may become the 52-week lows of 2013. Ford's current share price may provide a good entry point to establish a position in the automaker, and even more so on dips. Ford reports both its full-year and fourth-quarter earnings for 2012 on January 29. A solid quarter should inject even more momentum into the stock. 


Jharry1 owns shares of Ford and Microsoft. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford and Microsoft. 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!

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