If you follow the investing world at all, you’ve likely heard the Warren Buffett quote: “Be fearful when others are greedy and greedy when others are fearful.” You can apply that to many different situations in the investing world and it will serve you well. I applied it to a situation recently in which I felt that two stocks were unfairly undervalued, and asked whether it was time to scoop up some shares while others are fearful of them? There’s definitely a bearish case to be made about each stock, but I’ll show you why each one has sustainable, profitable growth ahead.
Ford Motor Company (NYSE:F) has long been a favorite of mine; even after its recent climb in stock price, I feel it’s undervalued. In my opinion it’s undervalued mainly due to the dismal outlook from Europe, which weighs heavily – an estimated $2 billion in losses – on the balance sheet. Here’s why I think investing in Ford Motor Company (NYSE:F) now could be a good play.
Its new global platforms of vehicles have been successes, every single one. The Fiesta, Focus and F-Series are all in the top six in global sales. The Fusion, which has had more success than the Fiesta and Focus in the U.S., is just now entering Europe and China. Ford Motor Company (NYSE:F) will be introducing 15 models into China by 2015, expecting to double its market share as the region quickly expands. The growth story is compelling, but is profitability sustainable now?
Ford Motor Company (NYSE:F) is well ahead of its competitors in creating economies of scale. It’s running plants at or near capacity, helping U.S. margins maintain 11% – a strong number in the auto industry. It’s expecting to get its number of platforms down to nine by the end of this year, allowing it pricing power through its suppliers. It’s estimated that Ford Motor Company (NYSE:F) can break even at U.S. automotive sales as low as 10 million a year now. Cost-cutting measures are already in place, and only improving; growth seems secure, and it definitely seems sustainable.
Last but not least
The Boeing Company (NYSE:BA) is an intriguing play that could rebound with the global economy and increased air travel. A common bearish argument I hear is that with government defense cuts looming, it could have a big effect on The Boeing Company (NYSE:BA)’s profitability. While those cuts definitely will have an impact, I think future growth in its commercial airline business – where it derives 60% of its revenues – could outweigh the loss of defense money.