Cyclical stocks can sometimes be tricky because they do well in a good economy and badly in a slow economy. It is why I have avoided the automotive industry over the last several years. But with the economy improving, the industry is picking back up.
Ford Motor Company (NYSE:F) has been on a roll this year, up almost 88% year to date. Can this continue? Does Ford Motor Company (NYSE:F) make a wise long term investment? Let’s look at some reasons why it could be.
source: Yahoo Finance
It is on sale
Ford Motor Company (NYSE:F) is currently trading at a P/E ratio of 11.21, and a PEG ratio of 0.8. Both of these values are below the sector averages of 12.3 and 2.3, respectively. The price to earnings growth is especially surprising. Ford Motor Company (NYSE:F) has beat earnings expectations the last 6 quarters running.
The makings of a growing dividend are present
Ford Motor Company (NYSE:F) is back on the path of dividend growth redemption. After financial troubles forced Ford Motor Company (NYSE:F) to cut the dividend in 2006, it wasn’t until January of last year before it returned. A little over a year later, and Ford Motor Company (NYSE:F) has already doubled this dividend. Better yet, the current dividend is only 16.6% of its cash flows. There is plenty of room for this dividend to move higher.
The outlook is strong
Ford recently posted very strong results, when it released its second quarter earnings. Ford beat consensus estimates $0.45 to $0.37. Not only that, Ford saw improvement in almost every financial category. Sales, revenue, net income, and even market share were ALL improved year on year. This resulted in management increasing earnings guidance for the rest of the year.
How does the competition stack up?
General Motors Company (NYSE:GM)
source: Yahoo Finance
General Motors Company (NYSE:GM) has been attempting to dig its way back since it received a “bail out” during the economic crisis. This has left somewhat of a “stigma” on General Motors over the past few years. Is it all bad news for GM?
GM trades at a P/E of 13.07, and PEG of 0.9. Both of these are comparable, but lower values than those of Ford. General Motors Company (NYSE:GM) has beaten earnings estimates for the last 2 quarters.