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Ford Motor Co. Message Board

  • derf82004 derf82004 Feb 23, 2011 8:31 PM Flag

    Rising Star Buy: Ford

    Rising Star Buy: FordBy Jim Mueller | More Articles
    February 23, 2011 | Comments (1)
    FFord
    CAPS Rating 3/5 Stars.$14.86 $-0.37 (-2.43%)
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    This article is part of our Rising Star Portfolios series.
    When Ford Motor(NYSE: F) landed on the watchlist for my Messed-Up Expectations portfolio, I was a bit surprised. With better than a dozen analysts following the company, I wouldn't expect the market to ever reach a point where growth in free cash flow (FCF) was expected to be so low as to pass my screen, but that's exactly what happened. And I, for one, am not going to let the opportunity to invest in this strong, and strengthening, company pass me by.
    The catalyst to this opportunity, I believe, is Ford's recent earnings report, which wasn't quite what the market expected. First, analysts were worried about costs in the fourth quarter that increased more than expected. Several analysts asked questions on the conference call focusing on this issue. Second, Ford's European division reported an operating loss of $51 million and more than a percentage-point drop in market share. Third, in the days following the report, several analysts cut their one-year estimates and/or price targets.
    While those concerns are valid, I believe Ford is doing several things to minimize their effect. In combination, they show that Ford is focused on margins and growth.
    Ford's response
    First, the company's "One Ford" strategy is simplifying its engineering and manufacturing process. One result is that Ford is now building cars off the same base, with just regional differences, all around the world. CEO Alan Mulally referred to this in the last call when he said, "10 different top hats off that new C1 platform, with 80% of the parts the same." With that much the same, efficiency -- and cost savings -- follow all down the line.
    Second, Ford consciously chose not to chase low-margin business in Europe last quarter. While that hurt market share in the short term, Mulally is confident that the new models coming out and the recovery in "the fundamental market" will lead to renewed growth in Europe.
    Third, of the U.S. and Asian automakers, Ford was one of only two to significantly reduce incentives in the U.S. in January. While Ford's January sales grew by 13%, behind GM's 22% growth, boosting incentives to grow sales is of limited value over the long term, especially when costs increase, like commodity costs are doing currently.

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