Is Ford Motor Company (F) Still a Great Investment?

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To a greater extent than its rivals, Ford Motor Company (NYSE:F) is more dependent on the European market and had been counting on the continent to further bolster its bottom line. Yet even a $732 million pre-tax loss fourth-quarter loss in the segment doesn’t keep the automaker from being the best investment in the industry.

A continental breakfast
While the entire industry’s sales on the continent have fallen to a 17-year low, Ford is the one most sensitive to the decline.

Carmaker % Sales From Europe,
Current Period
% Sales From Europe,
Year-Ago Period
Ford Motor Company 20% 25%
General Motors Company (NYSE:GM) 15% 18%
Toyota Motor Corporation (NYSE:TM) 9% 15%
Honda Motor Co Ltd (NYSE:HMC) 6% 8%
Nissan Motor Co., Ltd. (OTCBB:NSANY) 16% 17%

Source: Standard & Poor’s Capital IQ.

Obviously the health of the continent is important to everyone, but none more so than Ford. Moreover, the losses Europe creates for Ford are growing worse — almost $1.8 billion in 2012, a hole 45% deeper than it was in 2011. So it’s understandable that when the automaker reported guidance that offered little hope for improvement overseas, investors sold off the stock.

Ford Motor Company (NYSE:F)Indeed, not even Renault’s chairman, Carlos Ghosn, expects Europe to turn around for at least another three or four years, while Fitch Ratings says it could be as long as a decade, if ever, before it regains it footing. Parallels are drawn to Japan, where auto sales peaked more than two decades ago and have never gotten close to those numbers again.

All this sounds horrible, so why do I almost glibly suggest that Ford is still the top carmaker to invest in? Because North America is a cash-generating machine. Sure, Ford will need to minimize how much Europe sucks out of its operations, but it’s not a situation that is fatal.

Ford was Detroit’s top-selling automaker in January, enjoying 22% sales growth ahead of GM and Chrysler, which rose just 16% each. In fact, Ford had three of the top 10 vehicles for the month, with the F-series pickup being the overall winner. The automaker also posted pre-tax profits of $1.87 billion for the North American division, nearly doubling the segment’s operating margins and pushing them to 10.4% for the full year.

Going full throttle
As much as Ford dominates full-size trucks, together the Big Three control 93% of the truck market. GM’s Chevy Silverado was the second best-selling vehicle in January. Toyota would like to break their stranglehold because it’s such a profitable niche, so it is redesigning its Tundra. However, during Toyota’s best sales year, 2007, it sold 197,000 trucks; last year it moved just 102,000 trucks. Nissan is also looking to update its pickup truck to gain some of those profits, but with just 22,000 sold last year, it’s little more than a bug on Ford’s windshield, which sold 645,000 pickups.

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