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Ford's Success and Ways to Play It

NEW YORK (TheStreet) -- Ford (F) posted profits of 46 cents a share in the first quarter, beating analysts' expectations and further supporting the notion that the Dearborn, Mich., company has emerged from the global financial meltdown with vengeance.

The largest U.S.-based automaker has gained nearly 155% over the last year, closing at $13.58 on Thursday, driven primarily by strong sales, improved operations and higher profits in its financial services arm.

Some ways to reap the benefits of Ford's success include:

  • Consumer Discretionary Select Sector SPDR (XLY), which allocates nearly 4% of its assets to Ford. XLY closed at $35.56 on Thursday.
  • Vanguard Consumer Discretionary ETF (VCR), which allocates nearly 2.3% of its assets to Ford. VCR closed at $56.88 on Thursday.

Ford witnessed revenue growth in nearly all the regions in which it operates, growth attributable to favorable net pricing, higher volume and mix. In North America, revenue rose by 21%, generating profits of $1.2 billion. Another factor that likely aided in boosting revenue was Ford's focus on new vehicles that are fuel efficient and innovative.

A similar trend was seen south of the border as revenue rose 43%; in Asia and Africa, where revenue rose 33%; and in Europe, where revenue expanded to $7.7 billion, a jump of 33%. Additionally, Ford implemented measures which increased efficiency and lowered material costs which helped boost profitability in these regions.

As for the financial services arm of the automaker, Ford Credit reported a pretax operating profit of $828 million, driven by lower depreciation expense for leased vehicles and a lower provision for credit losses.

Overall, Ford has done a good job acclimating to changes in consumer demand, which has driven an uptick in revenue, and implementing cost-cutting measures which has aided in its profitability.

As for the future of Ford, the company continues to gain market share globally and macroeconomic conditions around the globe continue to improve, which will likely result in a boost in demand for automobiles. This further supports the company's notion of sustainable sales in all of its markets with healthy profitability for the remainder of the year.

When investing in Ford and the exchange-traded funds that could potentially be influenced by its performance, it is equally important to be mindful of forces that could put a damper on consumer spending. To help protect against these risks, the implementation of an exit strategy which identifies price points at which an upward trend could come to an end is important.

According to SmartStops.net, that price point for Ford is $12.88. As for XLY and VCR, their price points are $34.34 and $55.03, respectively.

Written by Kevin Grewal in Laguna Niguel, Calif.

At the time of publication, Grewal had no position in the securities mentioned.

Kevin Grewal serves as the editorial director and research analyst at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Additionally, he serves as the editorial director at SmartStops.net where he focuses on mitigating risks and implementing exit strategies to preserve equity. Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.

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