Tags: Auto Industry, Cars, Chrysler, Consumer Confidence, Ford, Honda, Toyota

Buy, Sell or Hold: Ford Motor Co. Is Ready to Haul In a Fortune for Investors

By , Contributing Editor, Money Morning •

Last week the Money Map team got together at the Baltimore Marriott and had a two-day conclave to discuss the market and what we can do to better serve you. We had many productive exchanges about our market views, preferred ways to profit, and other important issues.

Keith Fitz-Gerald, Martin Hutchinson and Shah Gilani all had terrific ideas that I am sure you will be reading about here in Money Morning, as well as in their trading services and in the Money Map Report.

But ultimately, we all see opportunities to make very good money out there.

I saved this one for you: Ford Motor Co. (NYSE: F).

After originally telling readers to buy Ford stock on July 28, 2008, I reiterated my recommendation in January of this year. My recommendation was to buy an initial position in Ford and then build it up over time, taking advantage of any corrections. I sure hope you followed my advice.

Ford's stock corrected a bit immediately after the recommendation and then proceeded to appreciate moderately. It is up slightly more than 11% since my Jan. 19 recommendation, and the rate of climb is about to get even better. Let me tell you why.

For starters, everything I wrote in January is still valid. The restructured and rejuvenated Ford has a superior line-up, with superior quality and it's gaining market share. This is key in an industry that is highly dependent on economies of scale.

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

Since then, the U.S. consumer has noticed the big increase in quality and it's adopted Ford's products on that basis. The public also noticed the decline in quality at the company's foreign competitors. Toyota's recent troubles have dominated the headlines, but some other car manufacturers have been forced to implement product recalls, as well.

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

Only now are analysts waking up to the fact that this company is fast on the mend. So let's address the main objection: the very high level of debt.

Back in October of 2000, when I was heading the global credit function at a major asset manager - which invested many billions of dollars in bonds - I looked at Ford, General Motors Corp. and Chrysler LLC from the approved list. They were technically bankrupt back then and they were not doing anything of substance to improve their cost functions in order to get out of the hole. It took eight years and the government-assisted bankruptcy of two of the Big Three to elicit the labor concessions and other restructuring that would allow them to compete on an equal plane with the foreign car manufacturers.

And, for the record, the U.S. car industry is very capable not only of matching foreign carmakers, but beating them handily. Back in 1987, I saw how efficient inventory management was at GM. All of the U.S. carmakers use state-of-the-art assembly lines and inventory management processes. And Ford is implementing Ford One, an initiative to reduce platforms, become even more efficient, and contribute $2.7 billion a year in savings to the bottom line.

Ford was already profitable in the last quarter. In fact, if you take a quick look at the company's balance sheet, you'll see it had a $10 billion positive swing in net tangible assets in the last fiscal year. This trend is going to continue, propelled by Ford's market share gains and expanding profit margins. With a healthy pile of cash, another $2 billion from the sale of Volvo, and no meaningful debt maturities for a couple of years, Ford's debt problem looks much more manageable.

Additionally, February sales showed a great positive surprise - Ford beat GM in sales for the first time since 1989. And the company is launching a slew of impressive new products - the Fiesta, Focus, Explorer and Super Duty - to keep that momentum going.

The market is a lot better than analysts believe: Even with the Northeastern United States clobbered by a two brutal blizzards in February, sales outdid expectations. And new Ford products are working well: Fusion hybrid and Transit Connect were awarded North American new car and truck of the year.

Again, once a consumer trend is established, it is very difficult to reverse. So I expect Ford to continue gaining market share momentum. I also expect to see car sales beating analysts' expectations. And this will have a fantastic effect on profit growth, because of the company's very high operational and financial leverage.

In fact, investing in a turnaround company is one of the easiest ways to make a fortune. As profits accelerates, so too will the stock as it races to catch up in order to maintain the multiple. The multiple then expands in recognition of accelerating profits. It is the sweet spot of investing. And this turnaround is one that is happening right before our eyes.

So take advantage of these changes by jumping onto Ford if you have not done so already.

Recommendation: Buy Ford Motor Co. (NYSE: F) at market (**).

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

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