Invest in America with Ford Motor Company
Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ford Motor Company (NYSE: F) is as American as baseball, hot dogs, and apple pie. My father, both of my brothers, and myself all began driving in Fords. My father's first car was a 1971 Ford F-100, my oldest brother's was a 1984 Mustang, my middle brother's was a 2003 F-150, and my first was a 2004 F-150. I had not even realized this until beginning to write this article. I guess the Solitro family is truly "Built Ford Tough."
Ford has been designing, manufacturing, distributing, and servicing automobiles and related parts since 1903. Ford owns the Ford and Lincoln brands, which are home to some of the most popular vehicles in the United States and across the globe. Ford's F-series has continued to dominate the United States as the best selling truck for 35 consecutive years. Lincoln is seen as a more luxurious brand of cars, which is shown in their higher than average prices. The Ford Motor Company faced plenty troubles during the economic downturn, but they have come out of it stronger than ever.
2012 & 2013
In January, Ford reported their strongest fourth quarter earnings in over 10 years. Fourth quarter pre-tax profit came in at $1.7 billion, and this brought Ford to 14 consecutive profitable quarters. Revenue rose 5.8% to $34.5 billion and earnings per share came in at $0.31. This blew past analyst expectations of $0.25 per share on revenue of $32.94 billion. North American sales surged over 12.5% and are expected to rise over 10% in 2013.
Earnings are expected to be back on the rise in 2014 and 2015. Analysts currently project earnings per share of $1.68 in 2014 and $1.98 in 2015. $1.68 per share would represent a 19.9% growth from 2013, an explosive number. The $1.98 in 2015 also shows a very high growth of 17.9% from 2014. These numbers make Ford worth owning right now. Management also said they expect to "command" a higher market share in both the United States and China next year.
The main issue facing Ford is Europe. The company's European unit reported a loss of $1.75 billion in 2012, and this loss is expected to grow to $2 billion in 2013. Ford says 2013 will be the bottom, as car sales have fallen to near 20 year lows. $500 million of Ford's 2013 losses will go towards restructuring that should help performance in future years. Ford owns an estimated 8% share of the European auto market, so leaving entirely is not likely. However, if Ford can turn around its European operations and get back to profitability, it would prove huge for the bottom line.
India is an emerging market that Ford is trying to gain a larger share of. They entered this market in 1996 and introduced their first car in there in 1998. At first, Ford's cars were too big and consumers did not embrace the Ford name. However, through research and development, Ford has brought one of the most popular cars to the market. The Ford Figo has done very well and has accounted for 85% of their sales in India year-to-date. The other 15% of sales comes from their less popular cars: the Classic, Endeavour, and Fiesta. Major auto companies are projected to grow by double digits over the next few years, so Ford is well positioned to benefit. They currently own a 2.6% market share in India, but this number could easily double if operations run smoothly and the Indian people learn to love Ford as Americans do.
General Motors (NYSE: GM) and Tata Motors (NYSE: TTM) are two of Ford's top competitors. General Motors manufactures and distributes vehicles worldwide, and includes brands such as Chevrolet, Buick, GMC, and Cadillac. As of January 2013, General Motors owns the largest market share in the U.S. auto market with 18.7%. Ford came in second, with a 15.2% share. In 2012, General Motors sold nearly 2.6 million new cars, while Ford once again came in second with about 2.25 million sold. Ford's sales increased by 4.7% from 2011, and GM's sales were up 3.7% in the same time frame. GM currently has the most U.S. sales in 2013 with about 195,000 cars sold. Ford once again comes in second with close to 166,000 cars sold. The General Motors and Ford competition is healthy, and both will continue to benefit from the recovering economy.
Tata Motors is the largest automobile company in India, bringing in an estimated $32.5 billion in 2012. They are also the fourth largest manufacturer of trucks and buses in the world. Tata holds a spot in the top 3 of the compact, mid size, and utility cars market, as well as the top spot in all segments of commercial sales. This is incredible strength, and it is shown by their sale of over 15,200 units in January. In comparison, Ford sold just 6,062 units during the month. One of the main things that sets Tata apart from their competition is their constant innovation. They are always bringing new products to the market. For instance, they released two new cars in the last 6 months and added the Tata Vista D90 in January. The people of India embrace all of these new cars, and sales have jumped. Ford has a tough competition in Tata, but if they can continue to introduce new products, they will be able to increase their market share and bring in billions of dollars in revenue.
Near the close of trading on Feb. 22, Ford was trading at $12.46. It is down around 12.5% in the last month, so there is definitely room to run. At $12.46, Ford is trading at only 8.8 times earnings. This is cheap compared to the industry average of 15.59, but could be due to 2013 earnings matching those of 2012. For Ford's stock to look cheaper, you have to compare the current stock price to 2014 and 2015. At these levels, Ford trades at just 7.4 times 2014 earnings and 6.3 times 2015's earnings. If you put a cheap multiple of 10 on 2015's earnings, Ford's stock would trade around $20 per share. This would represent a 60.5% move up in just 2 years, not even factoring in reinvested dividends!
Dividend on the Rise
Ford doubled its dividend this year, just one year after bringing it back. The company stopped paying a dividend in 2006 due to mounting losses and other financial woes. The increase from $0.20 annually to $0.40 annually was announced in January. This means Ford yields 3.3%, which is big enough to attract investors looking for a dividend play. If Ford can grow steadily, the dividend should grow right along with them.
The Bottom Line
Ford is a great way to invest in America while having international exposure and growth potential. They are likely to outperform the market over the next 5 years, so I have made a CAPS call accordingly. They made it out of near-bankruptcy to become one of the strongest automobile plays around. I think Ford's stock can work its way back to the $20's, where they traded in the 1990's. If Ford can grow globally and bring European operations back on track, they could become more powerful than ever. It will take strong earnings and consistent growth to do this, but Ford is on the right path and there is no stopping them now. Ford Motor Company is a long term BUY.
JoeySolitro1 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!