Better Products Will Lead to Gains in 2013
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ford (NYSE: F) recently announced a record quarter. This means great things for investors. The third quarter results reveal that Ford’s profits before tax stand at $2.2 billion. With this, Ford has now announced a pre-tax profit for thirteen quarters consecutively. And it is three times in a row that this U.S. automobile manufacturer has performed better than the expectations of Wall Street. That’s certainly some achievement that the company can be proud of and a clear road to investor confidence.
I have for some years now not been opting for automobile stocks, ever since the manufacturers started reporting lower sales figures. It appeared to me that the car, convertible, SUV, and hybrid sales just couldn’t pick up enough till the time the economy was in a considerable better condition. With cheaper models from Korea and Japan offering better deals to a price conscious market, would it make sense for the average American to look at Ford, General Motors (NYSE: GM), and the other companies in the market?
Ford – What’s making the Stock Move?
Around February-March, it was trading between $12 and $13. The stock achieved its 52 week high at this time. From April onwards, the stock began to plummet. It was trading around $9 in late July and August. But that’s when the stock price of Ford started to climb again. Currently it is trading around $11. Interestingly, the graph of General Motors shows a similar pattern. Its one year high was reached in February – it was trading around $27 then. Its low point was in July when the stock price fell to around $19. It has been going up ever since.
Why I Believe That the Ford Is a Better Bet
Ford is currently on a clean-up mission. It has recently announced that they would be closing down three of their European plants. This includes a huge factory in Belgium that employed 4,300 workers. Closing this unit is going to cost the company a one-time expense of $1.1 billion. But this will give Ford a $730 million saving each year.
Closing the three European factories makes sense. There isn’t any other option left for Ford. The fact is that automobile sales have dropped in Europe by as much as 7.2% - in just the first 9 months of 2012. Add to that the dropping sales figures in the last couple of years, and you will find that the sales are down by quite a bit. It seems that there just isn’t that much demand in Europe at this time. Ford's European plants have been performing by as much as 52% below capacity in recent times. This has resulted in huge losses for the company - $1.5 billion in 2012.
Ford has also announced the launch of the C-Max Hybrid SE. the company has high hopes on this model and hopes that it will be able to compete with the Prius V of Toyota (NYSE: TM). Hybrid cars are certainly selling fast in the US now. In 2011, 266,329 hybrid cars were sold in the US. This year, for the first nine months, the sales figure is already at 355,805. Prius is at the forefront of this. Ford’s Fusion has however been a laggard. The C-Max Hybrid SE is being launched after a lot of planning and research. Ford is hoping that finally they will be able to make inroads into the hybrid market.
Toyota's Prius V has a 134 horsepower engine. Ford’s C-Max, on the other hand, is powered by 188 horsepower. Prius gives 40 mpg. C-Max gives 47. C-Max Hybrid SE from Ford costs less too. So, it seems that Ford might finally have it their way. With unproductive facilities shut down, and a better product in the market, Ford's numbers are likely to be better in the next few quarters. And this will certainly reflect in its stock price movements.
But I believe Ford is a still a “wait and see” stock, because the operating losses will show in the fourth quarter results. After all, the restructuring program will take some time to show results. I will recommend buying Ford once the North American sales figures begin to come in, powered by the C-Max.
StockCroc1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. 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!