China Mobile Ltd. (ADR) (CHL) & Ford Motor Company (F): Brace for a Beijing Bust?

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Ford Motor Company (NYSE:F), which is counting on China for its future growth, could be such a target. The company, with its commercial-vehicle partner, recently opened a new $300 million assembly plant in China, more than doubling production capacity, and is investing more than $4.9 billion into the country overall to expand share in that market.

A significant Chinese financial disturbance would likely hinder auto sales, possibly for many years, and definitely crimp Ford Motor Company (NYSE:F)’s growth plans. Plus, a potential cyclical slowdown in North America and an enthusiastic valuation might also subdue its stock price. Given the company’s 2005 to 2007 average enterprise value (market capitalization plus debt) ratios of 1.1 times sales and 7.8 times EBITDA (earnings before interest, taxes and depreciation/amortization), Ford Motor Company (NYSE:F) shares look fair in the range of $9-$11 based on $135 billion in 2012 revenue and $18 billion in EBITDA.

Conclusion

China’s recent liquidity crisis has been averted, but it may have only been a symptom of a much bigger problem. If China is facing a bursting bubble, investors might want to watch for an opportunity to “buy low” and then be rewarded from the nation’s eventual recovery.

Bob Chandler has a long position in China Mobile and a short position in Ford. The Motley Fool recommends Ford. The Motley Fool owns shares of China Mobile Ltd. (ADR) (NYSE:CHL) and Ford Motor Company (NYSE:F).

The article Brace for a Beijing Bust? originally appeared on Fool.com.

Bob is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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