Ford looks like a solid buy and long-term hold at $9.75 and below. Unlike the other two large domestic automakers, Ford was able to stay out of bankruptcy AND fix their balance sheet and product offering since 2008. That is not the whole story.
They have changed for the better. They have a longer term focus and are the only automaker playing their own game. They are not copying anybody. They are poised to surpass GM in the next decade to become the 2nd largest automotive group behind Toyota.
The Key to Ford is Alan Mulally. Alan came over from Boeing where he was instrumental in helping turnaround that company in the early 2000’s. Unlike most of the CEO’s today, Alan truly looks out 3 to 5 years down the road to engineer a company for long-term benefit of the shareholders and employees. Couple this with the Ford families’ long-term ownership and you have the makings of a true buy and hold stock, rare these days.
The Ford family used to get a large share of their income generated via the large dividends that Ford paid out. Ford has not paid a dividend since 2006 when they halted payouts at $.05 per share per quarter (they regularly paid $.10 a quarter for years before). They halted their dividends because Ford had gotten into trouble financially and it was becoming apparent that when the housing bubble popped, so did demand for trucks and cars. In my opinion you will see Ford start paying a dividend when they get their financial rating to an investment grade AND get their debt on Ford Motor (excluding Ford Motor Credit) down below $5B (possibly $0) from $14B today. They are reducing their automotive debt by $2.6B per quarter. The timeline for dividend would be probably the end of 2012. The dividend may be delayed by a recession in the US.
Ford has taken the last few years to clean up their balance sheet, right size their production with facilities and employee reductions, and revamped their lineup of vehicles. These changes are resulting in lower incentives given to buyers of Ford products, translating into higher profits. Their revenues are consistently growing year-over-year for the last 3 years. Their earnings per share have grown from a -$6.41 per share in 2008 to a projected $2.02 this fiscal year.
Today Ford is rated junk at BB- (S&P). They have gone from total long-term liabilities of $280B in 2006 down to $162B as of the end of June 2011. Total long-term liabilities are a mixture of debt, taxes, and pension obligations. Their total debt is $98.6B down from $172B over the same period. Most of their debt is in their financial arm (think car loans, unlike some of the other automakers that ran into trouble with home loans). They are growing their net cash by $3B per quarter. I feel that they are overdue an investment grade rating possible a low A grading.
Projection
I am projecting that Ford will obtain an A/BBB+ financial ranking within the next 18 months (positive for their bonds) and their shares will to increase to $27 per share by October 1, 2014.
Full Disclosure
I do not own any Ford securities as of Sept 15th, 2011. I plan on adding Ford shares to my portfolio starting at prices below $9.75- which I think we will touch this fall if the markets continue their slide. If the shares do not get to this level by the end of October I will probably add some at a higher price point. I plan on slowly building the position up to approximately 20% of my portfolio.
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