Europe and China Got You Down? Ford Will Ease Your Pain
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Based on investor feedback and the sell off these past couple of weeks, it’s safe to say most everyone is disappointed. The domestic markets have essentially brushed aside a slew of positive economic data here at home to - once again - focus on China, Greece and Europe in general. ‘Tis a shame really - even the U.S. housing market is beginning a slow but steady turnaround, and that’s on top of strong consumer spending, confidence and employment figures. Yet here we are laboring as a result of all things international.
It could be frustrating – and most certainly is for the short-term investor - but it also provides a great opportunity for the value seeker willing and able to bide their time while the global marketplace makes a recovery. A great way to take advantage of the current situation is invest in one of the best values on the planet right now - Ford (NYSE: F). And if you like bargains - and what value investor doesn't - this should have you darn near salivating.
Ford’s share price continues to meander in the low to mid $10 range after nearly hitting $13 in mid-March. Though naysayers are more than willing to provide the “reasons” – first on the list is always "What about China?" Yeah, what about China? The idea that auto manufacturers have to saturate the all-important Chinese market is overblown. Would it be nice? Sure, and Ford and the other industry leaders continue to target the region, but contrary to what seems to have become Holy Writ, Ford and others aren't going to go out of business as China (and the rest of the world) deals with the reality of the global marketplace.
Case in point – of Ford's $136 billion in revenue last year (the 3rd straight year of substantial sales growth) – over $54 billion came from international sales. In other words, the international market consists of more than China – India is a focus for all-star Ford CEO Alan Mulally – along with the Mid East, Central and South America. Again, not discounting the upside the Chinese market offers, simply pointing out the notion that if you don't saturate that market you're somehow doomed to failure is a bit much.
Pessimists will argue that “…yeah, sales were up but the company lost almost $150 million in Europe in Q1...” That's true, but much of the loss was due to higher taxes, exchange rates and, let’s face it - a $150 million loss for a company the size of Ford is hardly the sky-is-falling material. And remember the opportunity here for the value investor is take advantage of the European crisis, not lament it.
Ford’s P/E is pretty much useless as a comparison tool because of the tax benefit the company saw in Q4 of ’11, but take that out and the financials are still sound – certainly better than the current price would have you believe. Gross profit margins stack up nicely with other leaders in the industry, including Toyota (NYSE: TM), General Motors (NYSE: GM) and Honda (NYSE: HMC). Ford’s 2% dividend yield is right in there with the rest of the industry, and the recent upgrade of the company’s debt to investment grade levels speaks to an industry leader that continues it’s march in the right direction – just as it has for several quarters now.
Thankfully for the value investor, the Moody’s upgrade didn’t cause too much of a pop – a couple percent for a company that is undervalued by as much as 50% is hardly a problem. Here's a consideration for investors in search of an industry bellwether for their portfolio - Ford is a great mid to long-term investment, that’s about as absolute as you can get in this wacky world of investing. But if you have just a bit of the risk-taker in you consider getting in ahead of the sales call scheduled for June 1st - it’s bound to be strong and shareholders should see a slight pop as a result.
timbrugger 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.If you have questions about this post or the Fool’s blog network, click here for information.