Ford Stock: Built Ford Tough

Ford stock has taken its share of beatings over the last few weeks, but large buyers are starting to swoop in for shares of the automaker.
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(Ford story updated with additional analyst commentary)NEW YORK (TheStreet) -- Ford (F) - Get Report, like many other stocks, has taken its share of beatings in the volatile markets over the last few weeks -- but despite concerns about how the weak euro currency could affect the stock, large buyers are starting to swoop in for shares in the automaker, while a survey of analysts shows that most generally believe that any harm done by the soft euro will be offset by other favorable factors.

Los Angeles-based portfolio manager Ken Shreve, who's also a contributor to


, says that right now Ford stock is the best auto stock to be in, given its strength from both a technical and fundamental perspective.

"I think the one cloud that is hanging over Ford right now is what demand is going to look like from Europe gong forward," but demand in North America is very strong and should see the company through the near future, according to Shreve.

There were numerous big buyers exiting the stock over the last few weeks; as with many other companies, there was considerable institutional-selling of the stock. Still, Shreve says that since then he's been seeing big buyers coming in again at a key level of support.

"It's showing good support at the 200-day moving average," he said.

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Shreve, for one, believes Ford has survived the worst of the selling action.

Meanwhile, Jeffrey Spotts, a New York-based portfolio manager at the $250 million Prophecy Fund, said he started to re-buy Ford again on Tuesday.

"Ford has been following the S&P pretty much tick by tick," he said.

Although Spotts would have preferred to buy Ford cheaper than it was yesterday, he didn't want to make any mistakes by waiting.

Worth noting is that Spotts doesn't see the stock doing much above $12.50 as a trade.

Separately, David Silver, an analyst at Wall Street Strategies, said "the weak euro I don't think will have that large of an effect on Ford shares;" the reason for the weak euro -- the weak economies in Europe -- on the other hand, is what concerns Silver.

"The lack of government incentives, and now the European Union being on the brink of disaster, will force what was expected to be a weak segment for the next few quarters even weaker." Still, Silver still has a buy recommendation for the stock, given that the company's second quarter is experiencing easy comparisons in North America, and its Latin America, Middle East, and Asia market is expected to stay strong.

"The fact remains that the company is making cars much more efficiently and is able to turn a profit," Silver said of Ford, which recently announced a $135 million investment in two Michigan plants for electric and hybrid vehicle parts manufacturing, expected to result in 200 new jobs.

Silver says he thinks the recent pullback of Ford shares gives "an excellent entry opportunity to a solid automaker."

S&P's Efraim Levy, who has a hold opinion on the stock, has been more cautious about Ford of the other industry observers.

Levy thinks that Fords has been good with product introductions and taking advantage of its rivals, who of course were experiencing problems ranging from bankruptcy to recalls. But "taking advantage of rival problems are moving into the rearview," Levy said; there's not much benefit going forward for Ford in this respect.

Although Ford should benefit from pick-up truck sales, especially with an increase in construction and manufacturing activity, it will still be faced with significant debt and interest expense because it didn't go through the bankruptcy process like other U.S. peers. Greater raw material costs will also be a rising, industry-wide issue.

Furthermore, Levy notes, "the combination of softer post scrappage program demand in Europe, as well as a weaker euro versus the dollar should restrain Ford's profit growth in 2010."

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Like Levy, Brett Hoselton, an analyst at KeyBanc Capital Markets, has a hold opinion on shares of Ford. Although he believes that Ford is well-positioned to benefit from a potential multi-year recovery in U.S. light vehicles sales, "much of the expected improvement going forward may already be reflected in the stock price."

"I think there are better investments among the suppliers," Hoselton said.

UBS analyst Colin Langan, who thinks that the euro exchange rate issue itself is very minor, said "I'm not currently forecasting significant loss over there, but minimal profitability."

Langan said Europe is a very low-margin business for Ford.

"The fact that Ford is not as levered to Europe makes it a good play," he explained.

The run-off in Europe's scrappage program has already been baked in Langan's numbers. He has a buy opinion on Ford stock.

As far as Ford's corporate credit rating is concerned, S&P has revised its outlook to positive and maintains a B- corporate credit rating for the Ford and its subsidiaries.

S&P analyst Gregg Lemos-Stein said that although the company has a highly leveraged balance sheet and financial risk profile, and like the rest of the industry, faces rising raw material costs, it's generated positive cash flow over the last few quarters; and "cash is the key, as they say," Lemos-Stein pointed out.

"Despite the high debt load, the cost cutting has lowered their breakeven point," Lemos-Stein said.

Lemos-Stein believes that Ford's free cash flow should remain at least neutral to mildly positive. And in terms of debt maturities, there's nothing major that Ford would need to repay before 2013.

Ford managed to reduce some debt through a debt exchange in 2009, but then added some after a deal with the UAW health care trust. Ford has also borrowed money from the U.S. Department of Energy for the development of fuel efficient programs. On balance, Ford's debt has increased.

-- Reported by Andrea Tse in New York


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