Ford Gets Out of First Gear

Rising fuel prices typically spell trouble for shares of automakers. For Ford (F - commentary - Cramer's Take), with its emphasis on big trucks and SUVs, this should be an especially brutal time. Surprisingly, the company's shares are up sharply from the March lows. A recent asset sale and a well-received turnaround plan get much of the credit.

Ford, the world's third-largest auto manufacturer, has a 15% global market share and a presence in 200 markets. The company also generates strong returns from its auto-financing unit.

Ford has recently dramatically stepped up efforts to turn the company around by introducing its new "Way Forward" plan to restore profitability to its North American automobile business. Ford's new plan is to expand its Ford, Mercury and Lincoln brands and to introduce new hybrids by 2010.

Moreover, the company is working on a range of affordable new engines and is currently focused on the new "ECOnetic" line of ultra-low-CO2-emission cars. Thanks to a sharp improvement in profitability in its South American operations and increased market share in Australia, Ford can now point to a few catalysts that could help send shares higher.

Ford's commitment to this new turnaround is backed by the recent hiring of Jim Farley, who used to run Toyota's successful Lexus division. Farley, who was hired to be Ford's global chief marketing officer, will certainly have his hands full. Recent surveys show that the Ford's brand has 90% awareness among new-car buyers, but the company is struggling with only 15% market share.

Farley has come up with a new marketing campaign with the slogan "Ford Drive One," which will feature Ford's employees talking about the company's improved quality and innovations.

The company will also get a much-needed $2.3 billion cash infusion from its imminent sale of the Jaguar and Land Rover operations that were recently sold to Tata Motors (TTM - commentary - Cramer's Take). The proceeds from the sale will help Ford's liquidity problems so the company can again focus on its core automotive operations.

Ground to Regain

Yet serious problems remain unsolved, such as the burdensome cost of pensions and health care. And sales growth of 7.7% remains below the industry average -- a trend that has been in place for the past five years.

The current weak economy is expected to lead Ford to a loss of 32 cents a share this year. But analysts expect Ford to return to profitability in 2009 by earning 63 cents a share. The forecast for 2010 is brighter still, with EPS estimates of $1.08.

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As the chart at right indicates, Ford's shares have made a strong run in the last three to four weeks. That increase has been backed by heavy volume and solid institutional support. Currently, the shares are up against minor resistance at $7 and major resistance at $7.50.

Despite Ford's challenges, the turnaround plan appears quite promising. If consumers accept its new products, shares could reach last year's high of $9.70 if there is a clear break above the $7.50 resistance level. If that doesn't happen, and the price breaks back down below the $6 level, it is likely there will be more downside testing to come.

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At time of publication, Manning had no positions in stocks mentioned, although holdings can change at any time.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.