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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


June 11th 2010 Ford
NYSE Symbol: F
Industry: Autos
Price as of 6/11/10: $11.40

So much for our bull market. In April everyone wanted a pullback to get into the markets. Well now we're getting it. Be careful what you wish for because you may just get it. One of the best performing stocks and one of the best stories in the last year is the revitalization of Ford Motor Company. Ford was one of the few auto companies to proactively restructure their balance sheet ahead of the financial crisis. Like a phoenix, Ford has risen from the ashes of the other bankrupt car companies. Sales and profits rose sharply in the last year as their stock shot up from under $2 a share last year to over $14 this year. And earnings have actually kept track with the stock. However the stock has pulled back recently due to the correction, rising commodity prices, and the inevitable rebound in GM. The recent pullback in the market has provided a buying opportunity for anyone that missed out on the big run up.
At the end of April Ford Motor reported spectacular earnings. Ford earned $2.1 billion in the first quarter as the economic clouds parted and consumers grew confident enough to buy cars again. A big chunk of the earnings or $528 million came from their financial division during the quarter. Even so, the profits for Ford marked the fourth straight positive quarter. It's an about-face from the same period last year, when Ford lost $1.4 billion, or 60 cents per share, at the height of the recession. Ford said it expects to be solidly profitable this year, a year earlier than its previous guidance. Ford's first-quarter U.S. market share made its biggest jump in 33 years, but the downside to that fact is things can't get much better. Ford faces a number of headwinds including higher prices for steel and other raw materials, rising interest rates, and anticipated weaker European demand. Ford will also have to deal with a revamped GM in the coming years that is looking to come public once again as soon as this year.
Even with the increase competition and other headwinds, Ford's stock looks compelling. Currently the stock is trading for 8.7 times this years earnings and 7 times next years earnings. There is no dividend and probably won't be for a long time due in part to their substantial debt load, so Ford is certainly not a conservative investment. But if the economy continues to improve, and Ford keeps executing, Ford's stock should continue to perform well in the coming years.