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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Ford

April 29th 2011 Ford
NYSE Symbol: F
Industry: Automotive
Price as of 4/29: $15.47


Three weeks into earnings season and so far the markets and investors like what they have seen. All three major averages made new two and a half year highs this week finishing a spectacular April. Blue chip technology stocks are performing well thanks to strong earnings and guidance from Intel in a time of the year that is typically not robust for chip sales. Intel goes ex-dividend next week with a 3.2% dividend yield. Heading into the spring and summer months are typically the time of year that retailers see improving sales. This week we'll feature a blue chip automaker that reported phenomenal earnings this week. The stock of the week is Ford Motor Company. After disappointing investors back in January, Ford rebounded this quarter with a blow out earnings. However the stock remains depressed after reaching over $19 a share back in January for the first time since 2002. The improving fundamentals and sales for Ford are spreading to other automakers. Besides Ford, GM also remains attractively valued trading below their IPO price from last fall. Toyota also is a stock to watch as the Japanese earthquake and tsunami caused a major disruption to their production.

This past week the second largest US automaker reported net income of $2.09 billion or 62 cents a share up 22% thanks in part to better than expected sales of new fuel-efficient models. Earnings easily beat estimates of 50 cents a share. Sales rose 4.7% to $33.1 billion, topping estimates of $30.8 billion. Ford's first quarter net income marked its' most profitable first quarter since 1998. Ford's U.S. sales rose 16% in the first quarter, excluding the Volvo Cars unit it sold last year, and also outsold GM for the second time in 13 years. The automaker boosted North American production by 14% to 657,000 cars and trucks. Due to the earthquake and tsunami in Japan, Ford lost 12,000 to 14,000 vehicles of production and may lose more, however, there has been no lost production in North America and the quake will have no "material" impact on Ford's earnings. A sticking point last quarter was European sales, however, pretax profit in the company's European operations more than doubled to $293 million which is good. Looking at the balance sheet, Ford has $21.3 billion in cash as of March 31, up from $20.5 billion at the end of the year. Ford also reduced their automotive debt to $16.6 billion, down from $19.1 billion at the end of the year. Looking forward, Ford expects total second quarter production to be about 1.5 million units, up 12,000 units from a year ago, reflecting continued strong customer demand for its products. However Ford does see commodity prices being a sticking point for the remainder of the year.

Ford's fundamentals and balance sheet continue to improve although the stock remains in a correction since January. Currently the stock trades for 8.6 times earnings, 7.8 times next years' earnings and less than 1 times sales even as production and sales of cars and trucks are reaccelerating. Besides Ford, GM also has a low valuation trading for 8 times this year's earnings and 6.4 times next years' earnings. The improving economy and auto sales seem to be lifting all boats. Now we need the stocks to reflect the strong fundamentals.