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Some Reasons Why Ford Is a Good Long-Term Investment

August 12, 2014 | About:
rusticnomad

rusticnomad

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Ford (F), having reported fantastic results in the second quarter, looks set to get better. The strength of Ford’s strategies and management is evident by its 20th consecutive profitable year. It has posted some impressive improvement in the top line, along with the pretax profits.

Reasons for growth

Ford is seeing healthy growth in markets such as the Americas, the Asia-Pacific, and Europe. Ford posted pre-tax profits of $2.6 billion. This was an impressive growth of $44 million as compared to last year’s same quarter. Ford’s net income came in at $1.3 billion, and management is bullish about its performance in the future. It is expecting pre-tax profits to fall in the range of $7 million to $8 million as it launches a wide range of products in the near future.

Ford is focusing on various aspects to improve its profitability. It is keeping its eyes on its One Ford plan, and working on all four elements to drive revenue. Ford, however, has struggled a lot due to weak economic conditions in the emerging markets. However, now it seems that the automaker has turned around and is all set to improve.

Strategic moves

Ford’s strategic moves are well aligned to check its rivals' moves in the industry. The competition in the industry is growing, with many players making good progress such as GM and Nissan, but Ford’s strength lies in innovation and new product offerings. Ford plans to strengthen its product portfolio by adding new products, and also focus on product excellence by undertaking product improvement initiatives.

With the improvement in its product offerings, Ford is expecting more customers to buy its cars, which will help it gain market share in the future. Ford is seeing good gains in some of the emerging markets such as North America and the Asia-Pacific. Ford is expecting good sales in China as well.

Ford is also pleased with the improvement in the European market, which was struggling earlier. However, now, it seems that the market in Europe is rising again as Ford saw growth in revenue. Sales in this market are improving, which indicates that the economy is improving, and customers are buying new cars despite high interest rates.

On track to grow market share

Ford will also benefit from the recalls of GM, which has hurt its market leading image and also scared investors away from GM. The grave problem with GM was of the faulty ignition switches which gave a chance to Ford to take advantage of this situation.

Ford is positive about maintaining its momentum with new launches. The company is right on track with its plan of 23 global product launches. Ford is counting on the new launches such as all-new 2015 Edge, Focus ST and Escort in China. Besides these, Ford has also revealed a number of concepts such as the Ford Everest in China, the S-MAX Vignale in Europe, and the Ford Lightweight Concept.

Moving on, Ford is doing well on the international front. In Germany, Ford has cracked an agreement with the German Work Council to improve flexibility and efficiency at its Cologne plant, which is expected to add more growth opportunities to Ford as by this it can ramp the production of Fiesta.

Conclusion

Moving on to the fundamentals, Ford looks reasonable with trailing P/E of 11.10. Its earnings are also expected to grow at a good pace considering its forward P/E of 9.29. This clearly indicates that Ford looks reasonable, and can be a good long-term holding, making it a good bet.


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