I have never really been a big fan of the auto stocks until Ford (F) pulled off its stunning turnaround. It went from being a second fiddle to GM to being a world class company that is posting strong growth again. I believe that the turnaround has legs and much further to run before it is finished. That means investors stand to gain a lot by buying it now and not looking at it for a few years. Here are three of my top reasons to buy the stock now.
1. The company’s tenuous debt situation of the past is showing excellent improvement. During the second quarter of this year, Ford retired close to $7 billion in debt, which saved it almost half a billion dollars in interest expense on an annualized basis. Improvements in operations and management efficiency should continue to allow the company to pare down debt even further, which is music to shareholders’ ears.
2. Ford’s recent earnings history has been nothing short of stellar. It has averaged a positive earnings surprise of almost 53% over the past four quarters. This shows what great operating momentum the company has and means it is a great candidate to exceed analyst expectations in the coming quarters by similar margins.
3. I like the way the company is being aggressive in emerging markets. It has invested over $1 billion combined in China and India where the automotive markets are growing strongly. The middle classes are exploding in these countries and there will be a lot of consumers that can afford to buy a car for the first time. Management believes that China and India will account for the majority of its global growth over the next decade.
These are three big reasons to buy the stock, but not the only three. CEO Alan Mulally has become a Wall Street darling and with good reason. I have confidence that the company is in good hands as long as he is steering the ship.
Additionally, earnings estimates have been heading higher. Over the past month, this year’s estimates have risen 23 cents to $2.05 per share. 13 out of the 15 covering analysts have raised their targets. I think the stock is cheap at about 7.5x this year’s estimates. I think this is a $20 stock in a year and much more if the company continues on its current growth path.
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