Ford Motor Company (NYSE:F) operates in two primary sectors: automotive and financial services. It manufactures heavy trucks and SUVs, which are high-margin and fuel-hungry vehicles. Ford’s stock prices have been rising steadily over the last six months and have the potential to rise further. In this article I will discuss four reasons why.
1. Strong financial performance
2. Emerging car segments and markets
Ford Motor Company (NYSE:F) has seen a strong growth in the compact cars segment. This segment is considered to have a high margin which can actually be the benchmark of the industry’s performance going forward. Looking at Ford’s worldwide sales figures, North America constitutes less than a quarter of it. Huge opportunities lie in emerging markets like India, China and Indonesia. As a result, Ford Motor Company (NYSE:F) is aligning its operations to capitalize on these opportunities. Ford’s automobile sales in China are up by 60% year-over-year. The Focus Compact, the first model that Ford launched in China last year, has been a huge success and is considered to be the best-selling passenger car of 2012. The huge investment in emerging markets shows that Ford is ready for its next phase growth.
3. New product launches
In April, Ford announced its new fuel-efficient 1.5-liter EcoBoost engine to meet the global demand of 4-cylinder EcoBoost engines. EcoBoost technologies facilitate improvement of fuel efficiency by 20% as well as improving emissions by 14%. The launch is crucial for Ford’s strategy as it is a tactic to enter global markets and also topple many of the company’s established competitors. There are also reports that Ford is working on a high-margin car to cut down losses.
4. Beating competition
General Motors Company (NYSE:GM) currently trades at a 50% premium to book value and has new launches lined up such as the Chevrolet SS and the Cadillac ER. Compared to Ford, General Motors made an earlier entry into the Chinese market, but Ford’s brand perception among Chinese customers turned out to be better. In the US, Ford’s market share of 16.2% in recent months is just below General Motors Company (NYSE:GM)’s 16.9%. Ford has the highest return on equity among its peers, however, standing at 34% and making it a better investment option.
Toyota Motor Corporation (ADR) (NYSE:TM), the Japanese automaker, has a higher marker cap than Ford and operates in diverse markets. Toyota’s distribution reach and product lines are also more varied than Ford. The growth rate between the two companies suggests that Toyota Motor Corporation (ADR) (NYSE:TM) is behind Ford in terms of new product launches and readiness for newer markets, however. Ford’s price-to-earnings ratio and the projected earnings-per-share growth rate of 4% over the next two to three years corroborate this statement. According to recent vehicle registration highlights, new registrations for Toyota vehicles declined 5%, while Ford vehicles declined 0.3%, the lowest in the industry. This shows that sales are increasing at a consistent pace for Ford, ahead of its competitors.
Conclusion
With a 52-week return of 50%, much more than the S&P index, Ford is currently priced at $15. The company’s brand image is renowned globally and it is sticking to its growth plans. With so many reasons enumerated in Ford’s favor, I see a significant possibility that the company’s stock is set to soar higher in the coming months.
Tanya Kanodia has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.
The article Four Reasons to Buy Ford originally appeared on Fool.com and is written by Tanya Kanodia.
Tanya is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
