Ford's Road Ahead

As will become tradition, my picks and pans analysis offers three easy-to-digest points and counterpoints.

Points:

• Strong franchise.

  The Ford brand remains strong, one of the strongest in the car business. Ford has extensive international operations, which should help as the dollar weakens.

• Innovation.

  I'm especially attracted to Ford's leadership in the U.S.-made hybrid space, and wish they'd offer more. Hybrids would really help distinguish its product, move away from SUV and truck sales and add strength to the brand. Also I like the new "Sync" alliance with Microsoft (MSFT Quote) to deliver Windows connectivity to cars, and I view Microsoft's willingness to partner with Ford as a strong hidden positive.

• Cheap, cheap, cheap.

  Ford's total market capitalization is $13.5 billion. Now, where can you buy a company with $90 billion in sales for $13.5 billion? Yahoo! (YHOO Quote) is valued at three times that. The price-to-sales ratio is 0.15, where a ratio of 1 is considered pretty good. And price-to-cash-flow is somewhere around 2, vs. 8 or 10 for a lot of other value plays.

Counterpoints:

• Mortgaged to the hilt.

  Ford is drunk on debt -- $150 billion worth at last count. Now, a majority is tied to Ford Motor Credit, so it's more like a bank, traditionally debt financed, and you can't easily apply traditional measures. But the recent sale and asset pledge for still $25 billion more in debt isn't a good sign, even if it does accelerate restructuring.

• Declining margins.

  Declining market share and sales have brought discounts and price erosion, hurting the top line, and poor cost absorption, shrinking margins and hurting the bottom line.

  Restructuring campaigns aim to line the cost structure up with sales. But are they going fast enough? Operating margins have shrunk to 10% from nearly 25% in the late 1990s.

• No control of price and costs.

  I really struggle with companies that can control neither their prices nor their costs -- airlines are the poster-child example. Loss of price control reflects poor market acceptance and excessive competition.

  With Ford, poor cost control reflects poor labor relations and the ever-present health care burden, and, more recently, higher commodity prices.

Bottom line -- this one's really tough. Declining gross margins and excessive debt are canaries in the coal mine singing the tunes of ill business fortune. Any of the counterpoints alone could kill a potential value candidate, and Ford is victim of all three.

But perhaps this phoenix can rise from the ashes, as it did once already from the 1990-91 recession.

An alliance, division sale or labor concession would be a real jump-start. Some good news could propel this stock into the high teens or 20s with a 60-cent dividend -- 8% at today's price.

My bottom line: Ford is a pan for most investors, but might be a pick for a few adventure dollars a value investor can afford to lose. Either way, keep your eyes glued to the windshield.