Is Ford A Better Idea For Your Portfolio?
Ford Motor (NYSE: F) -- the $131 billion (sales) vehicle giant with the 5.4% net margin -- prides itself on borrowing a bucket load of money before the financial crisis that enabled it to survive without a government bailout. To its credit, Ford has used some of its capital to invest in a tiny, fuel-efficient engine expected to hit the market in 2013. So should you add Ford to your stock portfolio?
Ford stock has had a wild run. It peaked in 1999 at $37 then moved down pretty steadily -- hitting bottom at $1.43 in November 2008. In July 2009, I noted that its stock had risen over 300% from that low and then stood at $5.91. I also thought it had further to rise. Since then it has gone up 140%.
Ford's finances are firing on all cylinders. Its 2011 first quarter was the best in 30 years. Its revenues of $33.1 billion were up 18% from the year before and exceeded analysts' expectations by 11%; its net income of $2.55 billion was 22% higher than the year before and its EPS of 62 cents beat Thomson Reuters I/B/E/S estimates by 24%. And Ford maintained its outlook for 2011 U.S. industry light vehicle sales at a range between 12.7 million to 13.2 million.
Ford is using some of that profit to invest in the future. It plans to introduce a so-called EcoBoost three cylinder engine in 2013. Ford claims that this 1.0-liter engine will "deliver horsepower and torque outputs equivalent to or better than most conventional 1.6-liter gasoline engines," according to Fortune. With gasoline prices near $4 a share, Ford will definitely sell quite a few of those EcoBoost-powered vehicles if the gas price stays that high or rises by 2013.
But Ford has quality problems. Although it was the highest ranked brand for quality in the 2010 J.D. Power survey, it is expected to stumble in the 2011 report due out on June 23. In the first quarter of 2011, Bloomberg reports Ford missed quality targets because of "glitches in new models and high-tech touch-screen dashboard controls." As Alan Mulally, Ford CEO said, "We have just a few issues with some of the newer technologies associated with Sync and MyFordTouch."
Ford also has problems with wind noise in its vehicles. On Thursday, Ford announced that it would spend $100 million on laser-guided robots in factories to help reduce wind noise inside its models. And given how hard it has worked to improve its quality image, I would not be surprised if Ford solves these quality problems.
Does all the good news on Ford mean it's a better idea for your portfolio? To think about that, we can look at its price-to-earnings-to-growth (PEG) ratio — a way to determine whether the value that the market assigns a stock is justified by the rate at which it expects the company’s earnings to grow. I think a PEG of 1.0 is a fair price, and anything below that is a bargain.
Ford's PEG of 1.23 is pretty reasonable. It trades at a P/E of 8 on earning expected to grow 6.5% to $1.99 in 2012. Given its 22% growth in the first quarter of 2011, it would not shock me if Ford grew even faster next year.
Given Ford's commitment to innovation and quality, the odds of upside surprise in this equity are good.
Ford stock has had a wild run. It peaked in 1999 at $37 then moved down pretty steadily -- hitting bottom at $1.43 in November 2008. In July 2009, I noted that its stock had risen over 300% from that low and then stood at $5.91. I also thought it had further to rise. Since then it has gone up 140%.
Ford's finances are firing on all cylinders. Its 2011 first quarter was the best in 30 years. Its revenues of $33.1 billion were up 18% from the year before and exceeded analysts' expectations by 11%; its net income of $2.55 billion was 22% higher than the year before and its EPS of 62 cents beat Thomson Reuters I/B/E/S estimates by 24%. And Ford maintained its outlook for 2011 U.S. industry light vehicle sales at a range between 12.7 million to 13.2 million.
Ford is using some of that profit to invest in the future. It plans to introduce a so-called EcoBoost three cylinder engine in 2013. Ford claims that this 1.0-liter engine will "deliver horsepower and torque outputs equivalent to or better than most conventional 1.6-liter gasoline engines," according to Fortune. With gasoline prices near $4 a share, Ford will definitely sell quite a few of those EcoBoost-powered vehicles if the gas price stays that high or rises by 2013.
But Ford has quality problems. Although it was the highest ranked brand for quality in the 2010 J.D. Power survey, it is expected to stumble in the 2011 report due out on June 23. In the first quarter of 2011, Bloomberg reports Ford missed quality targets because of "glitches in new models and high-tech touch-screen dashboard controls." As Alan Mulally, Ford CEO said, "We have just a few issues with some of the newer technologies associated with Sync and MyFordTouch."
Ford also has problems with wind noise in its vehicles. On Thursday, Ford announced that it would spend $100 million on laser-guided robots in factories to help reduce wind noise inside its models. And given how hard it has worked to improve its quality image, I would not be surprised if Ford solves these quality problems.
Does all the good news on Ford mean it's a better idea for your portfolio? To think about that, we can look at its price-to-earnings-to-growth (PEG) ratio — a way to determine whether the value that the market assigns a stock is justified by the rate at which it expects the company’s earnings to grow. I think a PEG of 1.0 is a fair price, and anything below that is a bargain.
Ford's PEG of 1.23 is pretty reasonable. It trades at a P/E of 8 on earning expected to grow 6.5% to $1.99 in 2012. Given its 22% growth in the first quarter of 2011, it would not shock me if Ford grew even faster next year.
Given Ford's commitment to innovation and quality, the odds of upside surprise in this equity are good.
posted by petercohan at 4:38 AM
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