Is Ford’s Stock Still A Good Buy?

With shares of Ford (NYSE:F) trading at around $11.53 is F an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Ford’s stock has seen its ups and downs over the past year. This stock tends to follow what’s taking place in the overall economy. If there are reports of improvement in real estate and employment, then Ford’s stock improves. This is simply because an automobile is a large purchase and the consumer needs to be strong. Since our economy has been so unpredictable over the past year, so has Ford’s stock. 

It’s clearly evident that we’re living in a time where the Federal Reserve finds creative ways to prop up the stock market, which has a major effect on everything. Unfortunately, the end game is not good. The rally we have seen over the past few years is an artificial one, and that will eventually come to an end. This, in turn, won’t bode well for Ford. That said, it’s very possible that this artificial run continues for another year, possibly more. If that’s the case, then Ford is a good investment. Let’s take a look at some other factors to get a better read on the situation.

E = Equity to Debt Ratio is High

Ford has a debt-to-equity ratio of 5.33. This causes some concern. Ford also has $35.54 in cash and $100.6 billion in long-term debt. This is another unhealthy number. On the other hand, Ford has over $9 billion in operating cash flow.  

T = Technicals on the Stock Chart Are Impressive Over The Past Few Months

Ford’s stock went on a tear in 2009, and that’s what seems to remain in most investor’s minds, but over the past three years, Ford has underperformed the S&P 500.

Over the past month, Ford is up 9.12% while the S&P 500 is down .15%. That’s impressive, but let’s take a look at the bigger picture. Year-to-date, Ford is up 6.51% while the S&P 500 is up 14.43%. Over the past calendar year, Ford is up 14.72% while the S&P 500 is up 20.94%. When you look at three-year returns, Ford is…

up 31.27% while the S&P 500 is up 37.58%.

At $11.25, Ford is trading $.75 higher than its 50-day SMA of $10.50. It’s trading $1.29 higher than its 100-day SMA of $9.96. And it’s trading $.56 higher than its 200-day SMA of $10.69. Looking at Ford from a short-term standpoint, the stock is showing strength.

E = Earnings Have Been Impressive  

While revenue hasn’t improved much over the past five years, earnings have improved by a substantial margin.

      2007       2008       2009       2010       2011
Revenue ($)in billions

170.57

143.58

116.28

128.95

136.26

Diluted EPS ($)

-1.41

-6.50

.86

1.66

4.94

 

Quarterly revenue and earnings have been steady.

     9/2011      12/2011      3/2012      6/2012      9/2012
Revenue ($)in billions

33.05

34.58

32.44

33.21

32.17

Diluted EPS ($)

.41

3.33

.35

.26

.41

 

T = Trends Do Not Completely Support the Industry

Ford’s new Chief Operating Officer, Mark Fields, recently stated that the new Ford Fiesta will offer 40 miles per gallon as well as a one-liter/three-cylinder eco-boost engine. In his words, Mark Fields states, “It will be the most fuel-efficient non-hybrid engines in the industry.” That’s the good news.

The bad news is that the North American market has been stagnant and the European market has been extremely weak. Ford has been aggressive in Asia, particularly in China and Thailand. If that bet fails, then Ford can be in for some rough times ahead.

Conclusion

Ford’s business has vastly improved over the past few years. Ford also offers a 1.80% yield. That might not blow anyone away, but it doesn’t hurt, either.

Ford almost met its demise in the early 1980s as well as in 2008. In both instances, these turned out to be great buying opportunities.

While the long-term prospects might be good, Ford is facing an uphill battle over the next few years. Due to overall economic conditions, automobile sales aren’t likely to improve.

Based on all the factors listed above, Ford is a WAIT AND SEE.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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