Is Ford a good stock?
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Is Ford a good stock?
We aren't talking short term, like if you bought last year, you'd make a killing, duh. I am talking long term. Here is what an adviser shared:
There's been a lot of talk recently about Ford and what a great job it has done. Add to that all the bad talk about Toyota, and people are asking, is Ford a good investment now or not?
Before I go on and maybe offend anyone about what I say about Ford, let me tell you that growing up I was always defending Ford. My good childhood friend Jeff and many others were big on Chevys, but I stood by Ford. Even when I was told Ford stood for "fix or repair daily," I stood by my Ford.
As time has passed my flavor for cars has changed to the Mercedes or Lamborghini type cars, but whether one likes the cars Ford builds or not is not as important as whether Ford is a good investment.
For that I turn to the numbers from the financial statements to determine, is Ford a good investment or speculation? Ford has reported earnings for the period ending Dec. 31, 2009 and the PE is now 20.2, close to the industry average of 20. Price to sales looks good at 0.36, nearly half the industry average of 0.68.
But the price to tangible book value is nonexistent, why? Ford's liabilities exceed their assets by $8 billion, not a comforting feeling. When I invest in companies it is required to have a positive equity position. The reason for this is I don't want my companies to file or be forced to file bankruptcy, and if your liabilities exceed your assets, bankruptcy is a possibility.
I was impressed by the price to cash flow of 3.9, well below the industry average of 13.7. Over the last 12 months Ford has produced $15.4 billion in cash from operations. While I think the company has a lot more to go, positive cash flow is a good step in the right direction.
While sales in the industry and for Ford have improved, they are still down from previous years. The percentage change year over year for the last 12 months is down 18.5 percent, beating the industry decline of 36.4 percent. Earnings growth for the same period looks great for Ford, showing an increase of 109.8 percent compared to the industry decline of 59.8 percent.
But before you get too excited, a visit to the income statement revealed to me that from operations Ford lost $2.8 billion; what gave it the $3 billion in profit before taxes was interest income net non-operating of $5.9 billion.
I can't tell you exactly where this came from, nor do I care; what I do know is that the profit did not come from the operations of the company and last year the interest income net non-operating was only $599 million. Looking back five years this number has never been this high, the closest was in 2007 when it was $3.4 billion. While I was at the income statement I also noticed that the shares outstanding increased by 32 percent to nearly 3 billion shares.
Looking at the balance sheet the thing that scares me the most is the amount of debt this company has, $132 billion, and remember the company has negative equity of $7.8 billion. While this debt is all long-term debt, it still has to be paid back along with the interest due on it. The future interest payments will be a drag on future earnings for Ford along with the dilution of the new shares, a low PE in the future will be hard to achieve.
I was surprised by the inventory turnover for Ford; it was 17.2 times over the last 12 months, which was lower than the industry average of 22 times for the same period. The accounts receivable for the last 12 months was 1.4 times for Ford, which was also below the industry average of 2.2.
There are 11 analysts that follow the company for the year ending December 2011 with a mean estimate of $1.38 per share. If one were to put a forward PE multiple on this company at just 15, that would be equal to a stock price of $20.70 -- well ahead of the current stock price of around $12 to $13 per share.
While it is possible that Ford could reach these levels on its stock price, if I held this company in my portfolio I couldn't sleep at night with the amount of debt and the negative equity and loss from operations and all the new shares it issued. It doesn't mean the stock will never hit this price or go higher, I just feel the risk to reward for me or my client's money is too high.
Before I go on and maybe offend anyone about what I say about Ford, let me tell you that growing up I was always defending Ford. My good childhood friend Jeff and many others were big on Chevys, but I stood by Ford. Even when I was told Ford stood for "fix or repair daily," I stood by my Ford.
As time has passed my flavor for cars has changed to the Mercedes or Lamborghini type cars, but whether one likes the cars Ford builds or not is not as important as whether Ford is a good investment.
For that I turn to the numbers from the financial statements to determine, is Ford a good investment or speculation? Ford has reported earnings for the period ending Dec. 31, 2009 and the PE is now 20.2, close to the industry average of 20. Price to sales looks good at 0.36, nearly half the industry average of 0.68.
But the price to tangible book value is nonexistent, why? Ford's liabilities exceed their assets by $8 billion, not a comforting feeling. When I invest in companies it is required to have a positive equity position. The reason for this is I don't want my companies to file or be forced to file bankruptcy, and if your liabilities exceed your assets, bankruptcy is a possibility.
I was impressed by the price to cash flow of 3.9, well below the industry average of 13.7. Over the last 12 months Ford has produced $15.4 billion in cash from operations. While I think the company has a lot more to go, positive cash flow is a good step in the right direction.
While sales in the industry and for Ford have improved, they are still down from previous years. The percentage change year over year for the last 12 months is down 18.5 percent, beating the industry decline of 36.4 percent. Earnings growth for the same period looks great for Ford, showing an increase of 109.8 percent compared to the industry decline of 59.8 percent.
But before you get too excited, a visit to the income statement revealed to me that from operations Ford lost $2.8 billion; what gave it the $3 billion in profit before taxes was interest income net non-operating of $5.9 billion.
I can't tell you exactly where this came from, nor do I care; what I do know is that the profit did not come from the operations of the company and last year the interest income net non-operating was only $599 million. Looking back five years this number has never been this high, the closest was in 2007 when it was $3.4 billion. While I was at the income statement I also noticed that the shares outstanding increased by 32 percent to nearly 3 billion shares.
Looking at the balance sheet the thing that scares me the most is the amount of debt this company has, $132 billion, and remember the company has negative equity of $7.8 billion. While this debt is all long-term debt, it still has to be paid back along with the interest due on it. The future interest payments will be a drag on future earnings for Ford along with the dilution of the new shares, a low PE in the future will be hard to achieve.
I was surprised by the inventory turnover for Ford; it was 17.2 times over the last 12 months, which was lower than the industry average of 22 times for the same period. The accounts receivable for the last 12 months was 1.4 times for Ford, which was also below the industry average of 2.2.
There are 11 analysts that follow the company for the year ending December 2011 with a mean estimate of $1.38 per share. If one were to put a forward PE multiple on this company at just 15, that would be equal to a stock price of $20.70 -- well ahead of the current stock price of around $12 to $13 per share.
While it is possible that Ford could reach these levels on its stock price, if I held this company in my portfolio I couldn't sleep at night with the amount of debt and the negative equity and loss from operations and all the new shares it issued. It doesn't mean the stock will never hit this price or go higher, I just feel the risk to reward for me or my client's money is too high.
Bullitt Member
Joined: September 8, 2009
Posts: 350
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From: San Antonio, TX
I did buy a bunch of stock almost exactly a year ago and I've been raising an eyebrow lately at Fords shares which have been somewhat shaken lately. Would have thought that the repaying of some debt would have helped things but it actually didn't. Curious.
FR500 Member
Joined: July 1, 2008
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From: Oxford, UK
The stock just got hammed by the UAW pension (VEBA) fund auctioning off 362,391,305 warrants to buy Ford stock for a price of 9.20$, diluting outstanding shares accordingly.
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Mach 1 Member
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From: AutoClubSpeedway
I think Ford has good potential. Selling Volvo at such a loss probably didn't help in the eyes of stock browsers, but they are repaying debt on a fast track. I think Ford has turned the corner in public perception in a major way, if this focus on quality/style/environment continues into the next two model lineups, Ford will succeed until they get lazy again. I hope that doesn't happen.
Team Mustang Source
Joined: October 13, 2004
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From: MD
To be honest I wish Ford would turn around and sue both for conflict of interest issues.
Last edited by bpmurr; Apr 8, 2010 at 09:59 PM.
FR500 Member
Joined: July 1, 2008
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From: Oxford, UK
I wouldn't read that much into it. The VEBA has to become self sufficient, they were going to sell the warrants at some point. Better that than having a bunch more people relying on Medicare, no?
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Joined: December 14, 2007
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From: State of Jefferson Mountains USA
a) bond holders is as interest rates rise, their prinicple will shrink. To avoid that many may start selling - which increases interest rates for future borrowers, and;
b) the risk for stockholders is dilution - hence the drop in share price. Again your principle shrinks.
Personally, I'm not a bottom fisher. I don't have any of the big names (except thru index funds). I like to ride momentum from a stable position.
And unless jobs start forming big time, the echo effect will hit the economy for either another slow down or malaise.
PS: I'm not worried about Ford's debt. Much of it is medium and long term - at historic low interest rates. So its not due next week and its just a cash flow equation. Better to issue debt at these low rates rather than dilute ownership. But they're probably going to have to do both for awhile. IMO
Last edited by cdynaco; Apr 9, 2010 at 12:32 AM.
Tasca Super Boss 429 Member
Joined: November 14, 2007
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From: Pacific NW USA
My wife and I bought as much Ford stock as we could afford last year at $1.81 per share. Bought more when we could a few months later. Bought more last week.
I believe that Ford stock is still currently underpriced and will continue its rise in value over the next 5-10 years, when $20-$30 per share is reasonable to expect.
I believe that Ford stock is still currently underpriced and will continue its rise in value over the next 5-10 years, when $20-$30 per share is reasonable to expect.
Bullitt Member
Joined: April 6, 2010
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From: Tujunga California
I bought it last year for $1.70 a share. I hope is goes up enough this year to sell it and buy a 2011 mustang.At the time my broker told me not buy FORD. Well I guess he was wrong.
Mach 1 Member
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that's what everyone told me too... now look at it--its probably going to be the only American car company to survive and thrive
Post *****
Joined: December 14, 2007
Posts: 19,953
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From: State of Jefferson Mountains USA
Well its easy to tout success after the fact. 
But when the market was falling off a cliff, and F was plunging with it, placing a large stake was extremely risky.
I watched many a dotcom plunge like that, take a dead cat bounce, and then go banko and shareholders lost it all.
I'm pulling for Ford but I've learned my lesson - diversification, asset allocation, and limiting risk to a manageable proportions, are key.
Remember the Nasdaq!
But when the market was falling off a cliff, and F was plunging with it, placing a large stake was extremely risky.
I watched many a dotcom plunge like that, take a dead cat bounce, and then go banko and shareholders lost it all.
I'm pulling for Ford but I've learned my lesson - diversification, asset allocation, and limiting risk to a manageable proportions, are key.
Remember the Nasdaq!
Last edited by cdynaco; Apr 9, 2010 at 12:05 PM.
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