Ford Motor Company (F) Remains a Great Investment Opportunity

Page 1 of 2

Last year, I outlined the investment thesis for Ford Motor Company (NYSE:F), and made the case that its lineup of new vehicles would propel the company and the stock to new heights. As noted in the chart below, Ford has delivered by strongly outperforming both its peer group and the S&P 500:



F Total Return Price data by YCharts

After almost doubling in value, many investors may wonder whether Ford Motor Company (NYSE:F)’s stock has become overpriced in recent months on the way to a new 52-week high last week. A quick look at the company’s valuation will make it clear that there is still room for the stock to appreciate from the current price near $17 per share.

A quick look at valuation

Ford trades at a very reasonable valuation, both compared to its fellow automakers as well as the broader market.

F GM TM HMC
CAPS rating (out of five stars) 4 stars 2 stars 3 stars 5 stars
Price $17.11 $36.40 $129.69 $38.42
Market capitalization (in billions) $67.3 $50.0 $205.4 $71.0
Dividend yield 2.4% 0.0% 1.1% 2.2%
TTM revenue (in billions) $137.6 $151.4 $280.4 $125.5
TTM price to sales ratio 0.5 0.3 0.7 0.6
TTM price to earnings ratio 11.6 12.5 16.8 14.8
Forward price to earnings ratio 10.2 8.3 11.7 12.9
Source: Motley Fool CAPS and Yahoo! Finance – 7/13/13

Looking at trailing sales, Ford Motor Company (NYSE:F) is trading at a cheaper valuation than all of its peers except General Motors Company (NYSE:GM); GM has had a well publicized plunge into bankruptcy, so there is certainly added risk (and opportunity) in any investment in the company until it can demonstrate a consistent history of performance. General Motors Company (NYSE:GM)’s seemingly attractive forward P/E of just 8 and PEG of 0.7 are strong indicators that the analyst community hasn’t completely bought into the General Motors Company (NYSE:GM) recovery story quite yet.

Ford Motor Company (NYSE:F)On the bottom line, Ford Motor Company (NYSE:F) is trading at a cheaper valuation than all of its peers. Additionally, the company’s strong recovery in recent years has allowed it to institute the highest yielding dividend in this group despite a payout ratio of only 17%.

None of the stocks in the peer group noted above are trading at lofty valuations. Toyota Motor and Honda Motor Co Ltd (ADR) (NYSE:HMC) are both trading at forward P/E ratios of less than 13. From a dividend perspective, both companies are similar to Ford in their ability to further increase dividend payments; Toyota’s payout ratio is just 11%, while Honda Motor Co Ltd (ADR) (NYSE:HMC)’s is only 31%. As a whole, this peer group is poised to provide a solid mix of earnings growth and dividends to shareholders over the next several years.

Strong growth opportunities

A year ago, the investment thesis in Ford Motor Company (NYSE:F) was based on a long-term view that the company is positioning itself for tremendous growth. Nothing has changed since then. Thanks to a new lineup of vehicles that have been well-received by the market, Ford is poised for further success.

North America

The key to Ford’s recent surge has been its strong performance in North America. The most recent auto sales data shows Ford’s market share in the United States increasing to 16.7% from 16.1% a year ago. Thus far in 2013, Ford’s domestic sales have increased 13%, which outpaces the 8% gain reported by GM and 6% gains by Toyota and Honda Motor Co Ltd (ADR) (NYSE:HMC). This strength has come from a number of vehicles, including increased sales of 22% for F-series pickups, 23% for Escape, and 18% for Fusion.

Europe

Europe has been a well-publicized problem area for Ford in recent years, headlined by an anticipated $2 billion loss in the region in 2013. With years of economic turmoil forcing Ford to reduce capacity, all signs indicate that the problems have reached bottom and that stabilization is underway.

Last week, Ford announced June sales in Europe that increased 6% over the prior year; while 6% may not seem that impressive, the overall market’s sales declined 7%. As a result, Ford Motor Company (NYSE:F)’s market share in the region increased by a full percentage point to 8%.

A return to profitability in this region would obviously have a huge impact on Ford’s earnings in the future.

China

To position itself for a portion of the huge growth opportunity in China, Ford is investing heavily in new production facilities, including the recent $500 million engine production facility in Chongqing. In total, Ford has spent over $5 billion since 2006 to boost production in this region. While some of this capacity expansion is not fully operational, Ford is still reporting strong growth in China, headlined by a 44% increase in sales during the first half of 2013.

A hidden benefit from rising interest rates

Most investors think that rising interest rates are exclusively bad news for companies like Ford. Rate increases result in higher interest payments on variable-rate debt and future fixed-rate debt issuances, and a company that relies on customer financing for the completion of sales is subject to pressure from rising rates.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!