Buy, Sell or Hold: Ford Motor Co.'s (NYSE: F) Turnaround Could Put Investors on the Fast Track to Profit

Back on July 28, 2008, I recommended buying a speculative stake in Ford Motor Co. (NYSE: F). The stock has more than doubled in value since then, and I believe it's positioned for even more gains.

Let me tell you why.

Investing in a company as it turns around from a highly distressed situation is one of the most profitable investments one can make.

Many billionaires, like Wilbur Ross and David Tepper of Appaloosa Management LP, are masters of this style of investing. And they have the profits to prove it.

That's why I am always looking for these rare situations, which can play a very important role in a portfolio, even with a small initial investment. And right now there are a few very strong signals that the U.S. auto sector, which was demolished by the financial crisis, is going to bounce back stronger than ever.

Decades with little competition after World War II allowed the industry to flourish. That, in turn, led to lavish compensation packages, which included ample health and retirement benefits. As manufacturers around the world got back into the car industry and embraced selling internationally, their product offerings and cost of production improved.

Unfortunately, while American manufacturing also introduced advanced manufacturing, sourcing, and scheduling techniques, the compensation component left the U.S. car industry vulnerable to foreign competition.

Foreign carmakers were able to enter the United States, establish manufacturing facilities in the South, which over time became known as "Detroit South," and ate into the Big Three's market share. And because they were not burdened with corpulent benefits they were able to offer a better product at a cheaper price.

So the Big Three, which made no money on their cars and sometimes even lost money, did not have the resources to launch new, competitive models nor the pricing to be able to obtain market share. And they died a slow death as a result.

Not even the loose monetary policies of the 2002-2003 recession that gave rise to the housing boom nor the resulting wealth effect that came from it allowed the Big Three to get out of their bind. Their structural lack of competitiveness left them piling up more and more debt to stay in business and decimated their capital base.

But the restructuring is working well, and combined with a recovery in demand could very quickly escalate profits at these entities.

In fact, Wilbur Ross said in his "State of the Auto Industry" speech at the Automotive News World Congress in Detroit, that the U.S. automotive sector will experience a renaissance over the next 10 years.

I agree. And that renaissance could provide us with an important source of profits in a sector where few investors are looking. And if we couple industry prospects, with the recent success that Ford Motor Co. (NYSE: F) has had, the path to profits gets clearer.

So the question here is, has Ford effectively turned around and become an attractive long term investment, or is it still a highly volatile stock to be traded by professionals?

Well, to begin with, Ford President and Chief Executive Officer (CEO) Allan R. Mulally had a tremendous track record at another large, unionized U.S. manufacturer: The Boeing Co. (NYSE: BA). He did a fantastic job at Boeing and he is following up with an exemplary performance at Ford.

Ford is now thriving with compensation packages, including health and retirement benefits in line with the foreign transplants operating in "Detroit South." And with a much more even playing field, Ford is innovating by embracing the "green" wave and capturing market share, which it has expanded by 1%.

That may not look like much, but a 1% pickup in market share in an incredibly competitive industry is a major accomplishment. Now, the momentum for market share is positive for Ford and gaining strength. The new models it launched at the Detroit auto show are exciting and embraced the hybrid and electric car revolution that will transform the roads in America.

The consumer concerned about the environment, and the long-term cash equation is getting more and more biased toward hybrid and electric cars. This is especially true for commuter cars. However, the progress being made in electric car driving ranges has been impressive, and that will motivate other types of drivers to join the green revolution.

The wave of new Ford product adoption by a cost-conscious, greener U.S. consumer has only just begun. Ford Fusion and Mercury Milan already beat the Toyota Motor Corp. (NYSE ADR: TM) Camry and Honda Motor Co. (NYSE ADR: HMC) Accord in reliability last year, and consumers are starting to notice. Once these trends start, they become enduring.

As sales and profits increase, we will get into a strong virtuous circle, where additional cash flow gives Ford more room to launch new models, improve quality and repay debt. You can see the huge improvement in its cash position. Ford is on the move.

Just look at its strong improvements in its sequential sales and margins performance since the debacle of October 2008. The trend is very clear, and we only are at the very beginning.

Many analysts will say that the rally in Ford's stock price has already discounted much of the upside, the market remains extremely skeptical because of the still very high level of debt. But nobody is factoring inmajor market share gains that are already occurring.

And sure, there are risks, but the critical surgery is behind us, and with continued diligent management, Ford's stock is set to thrive in the next three to five years and beyond.

Ford stock fell 16 cents, or 1.36%, Friday to close at $11.60 a share. That's almost an eight-fold increase from its 52-week low of $1.50 and just shy of its 52-week high of $12.14

Recommendation: Buy an initial position in Ford Motor Co. (NYSE: F) and build it further over time in corrections.

(**) - Special Note of Disclosure: Horacio Marquez holds no interest in Ford Motor Co.

[Editor's Note: Success as an investor isn't based on what's hot today.

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