Ford
Ford Motor Company (NYSE:F), the second biggest U.S. automaker by market share, has a GYP ratio of 2.49, given its forward (2014) EPS growth rate of 18.6%, forward dividend yield of 2.7%, and forward P/E of 8.9x. The company has a long-term EPS CAGR of 11%. Ford’s GYP ratio is thus 2.7 times higher than the comparable ratio for the S&P 500. While Ford Motor Company (NYSE:F)’s long-term EPS CAGR is lower than that of its archrival General Motors Company (NYSE:GM) and its forward P/E higher than GM’s, Ford differentiates itself from its main peers by an attractive dividend. The carmaker’s dividend payout ratio is 29% of the current-year EPS estimate.
We like Ford Motor Company (NYSE:F)’s long-term growth potential, despite near-term challenges in Europe and South America. Ford’s vehicle sales have been robust this year—rising 18% in April from the prior year, with the best April tally for pickup trucks since 2005. The U.S. energy sector boom, recovering construction markets, and the housing market growth have supported strong sales. In the longer term, a pent-up replacement demand in the U.S. amidst a record-high average age of the passenger fleet will help drive U.S. vehicle sales for several years. The automaker is increasing its U.S. market share, but it is still suffering losses in Europe, where it will likely return to break-even within two years, following its aggressive restructuring plan. We like Ford Motor Company (NYSE:F)’s push to gain a competitive edge by shortening the length of its product cycle (to a three-year period) and introducing new models faster than competitors.
Herbalife
Herbalife Ltd. (NYSE:HLF), a multilevel marketer of nutritional supplements and fitness products, has a GYP ratio of 1.98, which is a result of a forward (2014) EPS growth rate of 14.5%, forward dividend yield of 2.7%, and forward P/E of 8.7x. HLF’s long-term EPS CAGR is 15.1%. The company’s GYP ratio is 2.1 times higher than the comparable ratio for the S&P 500. HLF’s dividend payout ratio is 25% of the company’s current-year EPS estimate.
This stock has been a focus of a contentious debate between hedge fund manager Bill Ackman of Pershing Square—who called Herbalife Ltd. (NYSE:HLF) a pyramid scheme, initiating a large short position in the stock—and financier Carl Icahn, who has built a respectable stake in the stock and has said that HLF may become “the mother of all short squeezes.” (He also thinks Herbalife is “a great company to take private.”) Many investors are still short the stock, which does not instill confidence in the good long-term prospects of Herbalife Ltd. (NYSE:HLF). However, despite all the headwinds and accusations, the company has shown robust financial performance so far this year, reporting a year-over-year growth in net sales of 17%, 24% growth in adjusted EBITDA, 44% increase in adjusted EPS, and an adjusted operating margin expansion by 120 basis points to 17.2%. The company’s sales numbers showing growth across all geographical regions dismiss concerns that Herbalife’s main growth driver is the expansion in new markets.
Aside from the robust growth, the stock currently offers attractive valuation. However, given that the stock is at the epicenter of the clash of the hedge fund titans and a subject of highly speculative positions, it is better to wait until there is more clarity about the uncertainties surrounding Herbalife Ltd. (NYSE:HLF)’s business model.
