Monday, September 9, 2013

Where is Ford's stock headed through 2014?

Did I mention that Ford Motor Company is an amazing company? If you've followed any of the other things I have written about this company that is certainly an ongoing theme. I very much like Ford Motor Company, and when it comes to where they are ultimately headed, I think it is all upside from here, even if there are still certain economic factors that could give it a bit of a run for its money.

There is of course China to consider. This is an area where Ford is making impressive gains in market share, especially in the luxury sector, and Ford is underway to get three new plants up and running in China in order to keep up with demand. With plans by the Chinese government to close the widening wealth gap, this could help more of the 1.3 billion populated country to have access to disposable income to buy cars.

Good news in the housing sector bodes well for Ford since there is a direct relationship between house sales and the F-150. When housing sales are up, so are sales of the F-150, and unlike some of the other cars Ford makes, the F-150 has wider margins on sales of their trucks. The housing sector, while cooling just slightly, is still on a bit of clip, and likely will be for at least the next 12 months or so before taking a bit of a break. The F-150 remains the best selling truck in America, and I don't see that changing any time soon.

The Fusion is a huge boost to the company's bottom line as well, and Ford has been ramping up production of its popular economy class car in its Flat Rock plant just outside of Detroit to keep up with higher demand for them. Ford sales of their popular Ford Fusion brand are up 13% this year so far. Plants have been running three shifts to keep a steady stream of the Fusion rolling off the assembly line, and they recently announced adding 1,400 workers as well—add in the fact that in California the Fusion is just about to overtake Honda for market share, and this spells good news for Ford as a brand that can begin to take a bite out of the market share of popular Asian models which have dominated the U.S. market for years. This year alone the Fusion is the fifth best selling brand of cars in America, with the Toyota Camry remaining in the No.1 spot.

One of the best things to consider about Ford Motor Company is how well it has streamlined its operations, branding, and the fact that through one of the worst economic periods the auto industry has seen since the Great Depression era, Ford has led the pack in brand reputation, profits, and was the only U.S. automaker to say no to the government when bailouts were being offered to help them through a tough time.

Today the company is the Ford Motor Company and the Lincoln Motor Company after it shed underperforming brands like Jaguar, Volvo, and Land Rover, and even recently dissolved its Mercury brand in order to focus its attentions on the core of their business. Smart move, by the way, and it has been doing nothing but paying off.

All in all I think Ford's stock is headed up through 2014 and beyond. I see at least 15%-20% upside, but some analysts think the stock could jump northwards of 30%. I personally think there are still too many economic pressures to warrant that much up a jump in Ford's stock. But expecting a 15%-20% surge over the next 12-18 months is entirely reasonable. All they have to do is what they have been doing for the past several years. Sell great cars that people want to buy, and continue to reduce costs by keeping branding simple—which they have been doing better than anybody else so far.

In fact, I am so confident in the stock's ability to perform, a month or two ago I sold in-the-money puts with a strike of $20 set to expire in March of 2014. To be quite honest, even if I have to buy shares at that level, and the stock has not yet reached $20, I would still be quite willing and happy to buy them so long as the company continues to stay on track despite any short term blips in stock performance that may come along the way.

$20 is actually a discount to my mind no matter how you slice it. With even longer term prospects in mind, I'd happily pay $25 for it (but let me not get too far ahead of myself here). Today's price of just over $17 is a bargain to be sure.

Disclaimer: Jim Bauer currently owns shares and holds options interest in the Ford Motor Company, and has plans to add more shares to his portfolio in the near future.

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