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Bull/Bear Report: Ford -- Is This Stock a Lemon?
I have been a bull on Ford (F) for the last 2 years with little to show for my positive opinion on the stock. That all changed, maybe, with the tender offer from Kirk Kerkorian to buy shares at $8.50.
Believing that Ford had turned a corner, Kerkorian decided to take a major stake irrespective of current economic conditions. In a vote of confidence for management, clearly Kerkorian feels that better days are ahead.
Is such a bold move justified?
Obviously I am a believer despite being a bit early in my call. Ford, a leader in truck production, has been going through a painful transition diversifying its product line as competition sliced its market share.
With its stock value well off former highs, buying shares in the single digits made Rational sense to me. That case has only gotten stronger as the company has yet to truly turn the corner.
As we patiently wait for improvement and a return to growth, China, which is just becoming addicted to large SUVs, has become a huge part of Ford's future. More importantly, the negatives of higher fuel prices create long term opportunities for the company.
New technologies and advancements in alternative energies may very well create a huge boom for automakers. Certainly we see that already taking place with growing interest in hybrid vehicles.
But, I think there is so much more to that future growth story. At some point there will be a tipping point that results in the wholesale replacement of fossil burning vehicles. That means hundreds of millions of new vehicles using whatever becomes the preferred solution to the combustion engine.
The potential for the future, instead of the negativity of the present, drive my interest in Ford. From a valuation standpoint, the current price of Ford offers an attractive entry point.
Shares trade for just 15 times forward earnings and a small fraction of total sales. Although there is a fair amount of debt on the balance sheet the company does have a decent amount of cash, $23 billion.
The Bull Case - Wade Reese
Charts don't lie -people do!
As I recall the squawk and chatter about GM over the last 12 months, I come to realize that I am not easily impressed with the automotive industry. You have to go back to 1998 and 1999 to find the last positive performance. Ford is changing all that as we speak. A YTD chart comparison of GM and F leaves no room for doubt.
Considering the facts that Ford is now profitable, they have the "Green" models best suited for $4.00 per gallon gasoline in America and their global expansion is in place is proof enough that Ford has the right team in place for those tough times ahead.
The Bear Case - Don Barrett
Don isn't sure that investors can count on Ford's growth in export sales to continue. He's adopting a wait-and-see attitude.
Mr. Kerkorian in my view didn't make a very wise investment. While I'm giving my view I'm going to clarify why the Mr. Bernanke has continued to lower rates and with the tick down in unemployment to 5% this a.m. he is done with the rate cuts.
Mr. Kerkorian and Vad who was criticizing the cut of a quarter of a point a couple of days ago. Don't understand why the Fed was cutting rates. And if the Fed hadn't cut rates do you know what we would have had? A recession! Are we in a recession? No. By the most commonly used definition of a recession, two negative quarters of growth, we are not in a recession. How many quarters of negative growth have we had? Zero Zip Nada. Are we going to have a negative quarter in this business cycle? I had thought maybe one but with this mornings news I don't think we will have one.
Now to Mr. Kekorian and his investment in Ford. Let me backtrack a little to the rate cuts and the falling dollar. Why did the Fed keep cutting rates and in effect let the dollar drop? Exports! What is holding the economy up and keeping us out of a recession? Exports! Why are exports at record levels each month? The weak dollar! So,in my view the Fed has made the best out of a bad situation. If the U.S. hadn't had the right policy to encourage other countries to import our products ,we would be in a deep whole and it would have taken years to dig out of it. Look at DuPont, GE, Ford and all the other major companies doing the vast majority of the exporting and cut their exports in half and what would be the most likely scenario? Higher unemployment and most likely a "recession"!
One other point on the present economic situation. A lot of Americans have paid higher prices on just about everything and inflation is a problem. But, if you look at the other side of the coin, where would we be without the jobs created by the weaker dollar and rate cuts. I would postulate much worse conditions than we currently have.
Mr.Kerkorian is buying into a company that had a good quarter recently but if you look at sales most of Fords improvements were where? Exports! Will this trend in auto exports continue. Maybe. The dollar is strengthening and it will slow exports of Ford eventually. With the pick up in the U.S. economy and dropping unemployment, will Fords domestic sales pick up. Maybe. While Ford and GM reported last week of rising exports,they also had slowing domestic sales due to the "recession". But, if you caught this weeks auto sales Toyota and the other two major Japanese auto makers had "increasing" U.S. auto sales. Ford and Gm sales dropping in the US due to the "recession" and Japanese auto makers had "increasing' sales in the US. What's the deal? U.S. automakers domestic sales have been shrinking as the Japanese US sales are increasing. Why? The Japanese are building a better product and they are building automobiles the American public wants. Ford and GM can't seem to get away from the dual cabs and gas guzzlers they make and they are completely out of touch with the American publics needs. How many years has the Toyota Camry (built about a 2 hour drive from where I live) been the top selling automobile in the U.S.?
I wish Mr. Kerkorian the best and I hope he can have some input on the course Ford takes the next few years. If you think back Ford and GM have been in trouble for years and their problems didn't just begin. Make a better vehicle. And they will come!
I'm with Kerkorian and Mr. Reese. Ford is a buy in my opinion. You may have to be patient, but that's what investing is all about.
Jamie Dlugosch
Executive Editor, InvestorPlaceBlogs.
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