Alan Mulally, Ford Motor Company (NYSE:F)’s CEO, has been reassuring investors for some time that he has a “comeback plan” for Europe. After second quarter earnings blew past expectations, with 52% EPS growth coming from dramatic improvement in Europe, investors seem more inclined to believe Mulally.
The stock is trading at a fresh 52-week high but still ranks well on Fisher’s scale, with a price-to-sales ratio of just 0.47. I look at Ford Motor Company (NYSE:F) and see a company with a PEG ratio of just 0.97, a catalyst in a stabilizing Europe, and another catalyst in higher fuel efficiency standards. Over time, the attractive p/s ratio could just be the start of many catalysts that drive Ford Motor Company (NYSE:F) higher.
View the big picture
National-Oilwell Varco, Inc. (NYSE:NOV) checks in with a better than average p/s ratio of just 1.45, below the market average. It looks cheap based on price-to-sales, but it isn’t as highly ranked as a company like Manitowoc Company, Inc.(NYSE:MTW) (with a p/s of just 0.64).
When you look at these two companies, they have a lot in common. Both businesses make industrial equipment, National-Oilwell Varco, Inc. (NYSE:NOV) in the oil industry and Manitowoc Company, Inc.(NYSE:MTW) in construction. Yet, while both have attractive price-to-sales numbers, the rest of Manitowoc’s picture isn’t quite as pretty.
Manitowoc Company, Inc.(NYSE:MTW)’s revenue is lighter now than it was five years ago, National-Oilwell Varco, Inc. (NYSE:NOV)’s is much higher. While Manitowoc Company, Inc.(NYSE:MTW) is doing some things well, revenue growth hasn’t been overly impressive. Comparatively National-Oilwell Varco, Inc. (NYSE:NOV) has grown sales 15% annually over the past five years.
That top-line growth has helped National-Oilwell Varco, Inc. (NYSE:NOV) grow its cash hoard in recent years, while Manitowoc Company, Inc.(NYSE:MTW)’s cash on hand has declined over 50% since 2008.
So as I look at these two equipment makers, I see two “low p/s” stocks, but one that looks much more attractive when the big picture is considered.
Price-to-sales: an intriguing starting point
If you look at Ken Fisher’s track record, it’s hard to argue that the p/s ratio is a great starting point for stock picking. It may also be more relevant right now than ever, because so many companies seem to be growing EPS through cost cutting (even as sales stay flat).
That said, like all metrics, Ken Fisher’s “screener” is just a starting point. Make sure to evaluate a company’s cash and growth prospects before buying–just like we did with these three stocks.
Adem Tahiri owns shares of National Oilwell Varco. The Motley Fool recommends Ford and National Oilwell Varco. The Motley Fool owns shares of Ford and National Oilwell Varco. Adem is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Invest Like Ken Fisher With These 3 Stocks originally appeared on Fool.com is written by Adem Tahiri.
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