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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


December 9th 2014 Ford
NYSE Symbol: F
Industry: Auto
Price as of 12/9: $15.43

After OPEC's decision last week to not cut production, investors and analysts are scrambling to figure out the winners and losers. The airlines are one of the main beneficiaries so far. An upgrade from JP Morgan on the airline sector last Thursday sent the group to new all-time highs. US Airways, now American Airlines has doubled since we featured it last fall. The drop in oil has come at a good time for consumers driving to the malls for some holiday shopping. Retailers typically perform well in a low oil environment. Last week the retail sector rose 2.5%, but has underperformed this year. This week we'll feature a stock and sector that should also benefit from the drop in oil. The stock of the week is Ford. The lower oil prices are already taking an effect on sales. Total industry sales last month rose 4.6%, to slightly more than 1.3 million, the best month of November since 2001. The industry annualized sales are running at a rate of 17.2 million which is a good indication that the overall economy remains strong. Ford's fundamentals have continued to improve since the 2008 recession with strong earnings, a reinstated dividend, and now share buybacks propelling earnings and the stock price higher. Current earnings are expected to grow 43% year over year thanks in part to the introduction of the new Ford F-150 equipped with the latest in manufacturing technology with a first of its' kind, high-strength, military-grade, aluminum-alloy body and bed. Couple the new F-150 with improving fundamentals and lower gas prices and 2015 looks like it could be a great year for Ford and its shareholders. Growth and or income investors looking for a blue chip stock trading for less than a 10 times earnings that can thrive in a low price of oil environment should take a hard look at Ford Motors.

Back in October, Ford Motor beat earnings estimates by 2 cent earnings 21 cents a shares as sales fell to 3.2% year over year to $32.8 billion. The lower earnings and revenue numbers were largely reflecting the cost impact from the changeover to the new pickup trucks in North America, a special warranty accrual, and then weakness in South America and in Russia. Ford continues to expect its 2014 pre-tax profits to be about $6 billion, excluding special items. The company is on track with its record 23 global new product launches in preparation for a more profitable 2015. Ford continues to expect its North America operating margin to be at the lower end of its 8 percent to 9 percent guidance range, and better results in Europe, Asia Pacific and Ford Credit compared with 2013. In 2015, Ford expects to realize the benefits of its global product investment and growth strategies, and will continue its strong product push with 16 global vehicle launches. The new aluminum F-150 pickup truck launch should be completed in the first quarter of 2015 and should lead to improved earnings performance in 2015 and beyond.

However lackluster 2014 earnings from Ford has generally caused the stock to lag behind both the broader market and the automotive industry over the past two years and is therefore comparatively undervalued at this point in time. Currently the stock trades for a modest 9.8 times earnings and 2.3 times book value. The strong cash flow has allowed the company to reinstate the dividend, boosting its yield to 3.2% putting it in the top tier of dividend stocks within the S&P 500. Add in the capital appreciation potential for Ford and the projected lower gas prices and 2015 should not only be a good year for Ford sales and earnings, but also for shareholders.