By Jim Woods of InvestorPlace
A little more than 100 years ago, the
was just one capitalist's dream. Now Ford is an iconic company atop the heap of the U.S. auto industry.
Founder Henry Ford would likely be proud of the way the company has performed over the past couple of years. That's because Ford now is the hottest car company in the industry, boasting blistering earnings and delivering shareholders supercharged gains.
In fact, Ford stock is up 14.5% over the past three months. The stock is also 23% higher year to date, and over the past 12 months the stock has surged more than 67%.
What's most impressive is Ford's rise from the depths of the Great Recession. Over the past two years, the stock has climbed 153%. Now that's full-throttle performance worthy of every investor's praise.
So, can Ford keep the pedal to the metal on its share price performance, or is the stock ready to overheat and stall? Here are the pros and cons of Ford Motor Co.
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Ford Stock - Pros
An earnings powerhouse
. The key to any continued strength in a stock is the presence of strong earnings. Here Ford clearly delivers.
In July, the company reported better-than-expected earnings of $2.6 billion for the second quarter. That figure was up 15% from a year earlier. The second-quarter earnings beat represents the company's fifth consecutive quarter of profitability since the automaker drove its way through the extremely treacherous economic road of the past several years.
Ford Chief Executive Alan Mulally has proven to be a very smart leader. Under Mulally's watch the company has become more efficient, and its vehicles have become more appealing to consumers. The company now offers consumers an attractive mix of cars, SUVs and trucks. Fiscally, management has retained plenty of cash while also managing to pay down debt.
Strong global sales
. To be certain, Ford sells a lot of cars in the U.S. Yet the company also is a worldwide sales giant, with strong global sales and profitable operations in its Asia-Africa, Europe and South America divisions. The company's financial business, Ford Credit, also has shown strength in recent quarters.
Ford Stock - Cons
Stagnant September auto sales
. As well as Ford has done of late, it's hard to fight a slowdown in the economy.
According to auto industry research firm Edmunds, September auto sales are likely to be slower this month than last. Although the research predicts that new car sales will be above September 2009 levels, Edmunds is anticipating a 5.5% overall decrease in new car sales in August to 936,900. Slower sales aren't good news for Ford; however, Edmunds predicts that the company's sales will dip just 2.6% in September.
That's quite a bit smaller than the predicted 9.5% decline for
; 7.1% anticipated drop in sales for
, and 3.8% slide for
Hefty pension expenses
. One financial problem for Ford is its hefty pension expenses slated for 2011. Ford says its estimated pension costs are approximately $1.5 billion next year, but a recent report by Credit Suisse claims Ford's pension expense could jump to between $2.3 billion and $2.7 billion depending on how the company chooses to its deal with the so-called pension "relief" options. If the Credit Suisse report proves accurate, it could weigh down Ford's bottom line going forward.
In danger of overheating
. The high-revving engine that is Ford stock has indeed been impressive of late, but now the fear is that the stock may be ripe for a pullback. Shares have been on a tear since they broke below their 200-day moving average in late June (see chart below); however, if the overall market begins to stall it could take high-flying stocks like Ford down with it.
Ford's shares continue to climb, and their earnings performance continues to impress. If either of these metrics begin to slowdown, then it might mean that Ford shares are headed for trouble. But short of a breakdown in earnings and/or an extreme slump in worldwide auto sales -- i.e., something akin to a global double-dip recession -- Ford stock is likely to continue taking shareholders for a profitable ride. The verdict here on Ford is decidedly in favor of the pros.
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--Written by Jim Woods.
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At the time of publication, Woods did not own any of the stocks mentioned here.