GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Ford: A Stock That Has Immense Potential in the Immediate Future

April 11, 2014 | About:
abirk

abirk

4 followers

Ford Motor Company (F) is one of the first American automotive companies that even today successfully manufactures and sells automobiles, trucks, buses and automotive parts. Ford is the second largest U.S. automaker and the fifth largest vehicle seller in Europe and the world, based on 2010 vehicle sales.

Ford is a producer of cars and trucks. The company also engages in other businesses, such as financing vehicles. Ford operates in two sectors: automotive and financial services. Through its sectors, Ford provides a wide range of vehicles, vehicle parts and services to a multitude of consumers and companies worldwide. It is now revolutionizing its vehicles in order to compete on the world stage.

Gaining Big in China

Many middle-class Chinese say they want a nice car that isn't ostentatious, and isn't a flashy luxury brand, but that still has some luxury features and maybe a luxury-car type ride, and Ford really kind of owns that right now. The Focus has just had a tremendous run in China. It's one of China's best-selling cars every month and, more recently, we've seen strong sales for the Kuga, which is the Chinese version of the Ford Escape SUV, and for the Mondeo, which is the Chinese version of the Fusion.

Continued strong demand for the Ford Focus, the best-selling nameplate in China last year, helped Ford China increase sales by 67% in February, with 73,040 vehicles sold. Ford China’s sales are up 59% so far for the year, with sales of 167,506 vehicles compared to the first two months of 2013.

Sailing Past the Headwinds: Expect for a Better 2015

On Ford's recent earnings call, CFO Bob Shanks admitted that the introduction of the new F-Series trucks is the main culprit behind the expected decline in North American earnings. Ford produces the F-Series trucks at its Dearborn and Kansas City plants, and the Dearborn plant in particular will have 11 weeks of downtime this year due to the changeover.

Barring a global economic downturn, Ford is likely to see a surge in profitability in 2015, driven by solid improvements in its North America, Europe, and Asia-Pacific regions. In North America, the dislocation caused by the F-Series launch will be more or less over by 2015. In its place, Ford will have the newest full-size pickup lineup in the industry, one which is expected to deliver best-in-class fuel economy.

In total, Ford is launching 16 new or significantly refreshed products in North America during 2014. This will entail some initial launch costs in 2014 and have its biggest benefit in 2015. Ford should also see a return to earnings growth in the Asia-Pacific region in 2015. Ford's profit in that area improved by nearly $500 million last year due to surging sales, particularly in China.

Ford expects sustainable growth moving forward in China. To keep up with market demand, Ford together with its partners currently added four new plants in China. For much of the past decade Ford has trailed Japan's big car makers, but a line-up of new and revamped vehicles, including the top-selling Focus, and a China-Japan territorial spat helped the U.S. company in 2013.

Positive Attitude Towards Green Vehicles

Cars that are fuel inefficient and emit large quantities of CO2 heavily pollute air and negatively affect the environment. Consumers are aware of this negative impact and are more likely to buy “green” vehicles that emit much less CO2 and are fuel-efficient.

Investors also see good potential in Ford's shift to greener cars. While other carmakers are pushing into the electric vehicle space — such as Tesla (TSLA), who aims to introduce its electric sedan by 2012 — Ford has plans for a couple of plug-in models in the next couple of years like the Focus. It's already working with Microsoft to utilize its Hohm energy management application for recharging the cars as well.

Soaring Expectations

Ford has decided to produce single, streamlined global lineup of its models. The carmaker no longer produces customized vehicles for different regions but focus on designing and engineering the car that fits different regional tastes and regulations. It significantly decreases costs for the company and drives record profitability.

Many more models are on the way — and many of those will be built in China. That allows Ford to avoid China's steep tax on imported vehicles, though at a cost — profits will have to be split with Ford's Chinese joint-venture partners, as required by Chinese law. Still, the increase in sales should make that trade-off more than worthwhile.

The company says that China is on the verge of becoming its second-largest market after the U.S., eclipsing the company's longtime stronghold in Europe. By 2020, it's possible that Ford's sales in China could be even greater than its sales here at home. That kind of growth will drive a big jump in profits for Ford. And that will be a great thing for Ford's stock.

Ford’s leading F-150 pickup — the best-selling vehicle in America — is being primed for release later this year, as is the new 2015 Ford Super Duty line. Ford said the optional second generation of its 6.7-liter Power Stroke turbo-diesel V8 will be packing more power than before, with 440 horsepower and 860 pound-feet of torque. That’s an increase from the 400 horses and 800 pound-feet from the model year prior.

On top of Ford's existing technology that enables its cars to park themselves, detect dangerous driving conditions and assist with emergency braking, Ford has ambitious plans for its next generation of vehicles. The automaker announced strategic partnerships with the University of Michigan and insurance provider State Farm that promise to bring Ford one step closer to offering self-driving cars.

To End

Ford owners are among the most loyal of all car owners, according to Consumer Reports data. Some 56% of Ford owners are likely to buy another one. Ford has certainly been performing well as a company over the past few years — making good vehicles, being consistently profitable, recently reinstating its dividend, and doing a remarkable job paying down its debt.

Ford's F-150 is the best-selling vehicle in the country, and its new initiatives designed to generate greater fuel efficiency will only improve its standing in the near future. Ford simply dominates the pickup truck market, and its international operations are back on track. It will surely reap good returns to its valued shareholders.


Rating: 4.0/5 (1 vote)

Voters:

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide