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Ford Motor Company (F): Ways to Profit From the Automotive Industry

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Ford Motor Company (NYSE:F) just released its second-quarter earnings last week and its sales figures were promising, but there are other companies to look at that will benefit downstream from these auto sales. However, let’s begin with Ford itself

Ford Motor Company (NYSE:F) increased first half sales by 370,000 units worldwide, resulting in an additional $579 million in revenue, or $0.17 per share. This resulted in a higher capacity usage at Ford’s existing plants, leading to a 6.4% operating margin in 2Q’13 vs. 4.9% in 2Q’12 on a worldwide basis.

Ford Motor Company (NYSE:F)Europe sales are also improving, although it is still losing money. Ford Motor Company (NYSE:F)’s European division posted a loss of $348 million, a $72 million improvement over 2Q’12. This is just the one blemish in an otherwise rosy report. Ford’s cash position also improved by $1.7 billion in 2Q 2013, giving it more flexibility moving forward.

Ford Motor Company (NYSE:F) is also capitalizing on its OneFord strategy to aggressively restructure its product mix and align its products with demand. Ford plans on doing this while also capitalizing on global platform sharing, to more aggressively compete on cost within the developing countries of China and India.

Ford Motor Company (NYSE:F) had been taking steps to capitalize on its strengths and mitigate its risks as well. Instead of increasing the dividend right away, Ford is using its excess cash to contribute to its pension obligations and buyouts to mitigate future risk. Ford pays out only 16.5% of earnings in the form of a 2.3% dividend, but is now utilizing its cash to cut its business risks. Investors seem to be fine with this strategy, as the stock has risen more than 85% this past year, and is still reasonably valued.


The Valspar Corporation (NYSE:VAL) is known for its consumer paint brand of the same name, but it also has a large industrial coatings business. The company reported 7% increase in sales volume and an EPS of $0.91, an 8% increase over the prior year period.

The company is now integrating a recent merger with the store branded Ace Hardware paints, and is currently restructuring its consumer division. The company has taken $23 million in charges this quarter to close down one of the plants acquired so that it can run its existing plants at a higher capacity.

The Valspar Corporation (NYSE:VAL) is also dedicated to research and development projects to differentiate itself. It has increased spending on R&D by 17% since 2010, and recently came out with a coating product additive that instantly dries when exposed to ultraviolet light. This additive will be a boon to manufacturers that can now continue working on recently painted and coated vehicles almost instantly after they are painted. Sales should continue to increase as the company continues picking up more long-term supplier contracts from manufacturers for its proprietary technology.

The Valspar Corporation (NYSE:VAL) currently has a net profit margin of 7.3% compared to an industry average of 3% due to its strong brand name and unique characteristics of its coatings products. The company pays out 26.5% of its earnings to support a dividend of 1.3%. This company has room to continue its dividend increase and leverage its scale in the commercial paint and coatings business.

Aftermarket


3M Co (NYSE:MMM) is a giant conglomerate with multiple business segments. The largest segment is industrial, where it competes making coatings and adhesive materials. 3M intends to raise R&D investments from 5.3% of sales in 2011 to over 6% in 2017. This should help in increasing sales and widen its moat.

The aftermarket segment for vehicles has been growing in America as the automotive fleet ages. The average age of a car on the road in 2013 is 10.6 years, up from 9.2 years in 2010. This means that people are keeping their cars longer and in doing so, using products to maintain them. 3M Co (NYSE:MMM) saw a 15% increase in sales from 2010 to 2013 in its automotive segment.

3M Co (NYSE:MMM)’s other segments also performed well while projecting EPS growth of between 9% and 11% annually through acquisition, organic growth, and share repurchases. 3M expects to see weakness in its consumer electronics and renewable energy segments through 2013 while maintaining strong R&D investment to capitalize on a market turnaround.

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