February 7

My Ford Tough Portfolio


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Yesterday I added a new position to my Investment Hunting portfolio. I am temporarily referring to my investments as my Ford Tough Portfolio. I purchased shares in the Ford Motor Company. I did not add new capital, instead I sold my entire position in Realty Income Corp (O), in exchange for Ford Motor Company (F). I sold 20 shares of O for $1,017.36 and immediately purchased 73 shares of F, at a cost of $1,163.52. I purchased Ford shares at a cost basis of $15.94 per share. This new stock position will net me $43.80 in annual dividends. Why did I sell O? I am long on Realty Income Corp. I choose to sell because I held O in my after tax brokerage account. I want to hold O in my Roth IRA account for optimal tax treatment, for use in my family bank. I will re-initiate my position in O next week.

Ford is not typically a stock seen in the portfolios of most dividend investors. This is probably because General Motors (GM) is the darling dividend stock in the Automotive sector. I believe Ford will become a favorite of the dividend investor community over the next 5 years. Ford has re-instituted quarterly dividends as of 2012, and has a lot of room to increase dividends in the future. In my opinion Ford is an undervalued stock. Ford’s current P/E Ratio is 9.6, and Ford stock is 12.5% off it’s 52-week high value.

Ford Motor Company Overview

Ford Motor Company manufactures cars, trucks, automotive components and systems. Ford also operates an in-house financing company.

Founded by Henry Ford and incorporated in 1903, Ford is an iconic American brand. Henry Ford revolutionized manufacturing by optimizing assembly lines. The Ford Motor Company introduced revolutionary vehicles such as the Models A, T and in the 1960s, Ford launched the Mustang. The Ford Mustang is an American Muscle Car icon. Ford is the second largest U.S. based automaker.

Ford Fundamentals

Market analyst opinion of Ford are the same as mine, BUY.

Morningstar, The Street, Sabrient, Markit Research Team and S&P Capital IQ all list Ford a buy.

Morningstar ranks Ford as a 4-star stock with a fair value stock price estimate of $23.00.

S&P Capital IQ ranks Ford as a 4-start stock with a 12-month price target of $17.00

Profitability Ratios, 3-Year Average

Gross Profit Margin 14.5%
Operating Profit Margin 5.6%
Net Profit Margin 8.0%
Return On Assets 5.9%
Return On Equity 65.7%

Liquidity Ratios, 3-Year Average

Current Ratio 1.93
Quick Ratio 1.84

Coverage Ratios, 3-Year Average

Times Interest Earned 5.98
Cash Coverage Ratio 11.33

Liquidity Ratios, 3-Year Average

Current Ratio 1.93
Quick Ratio 1.84

Ford Risks

All stocks come with risk and the Ford Motor Company is no different. Ford carries a lot of debt and faces steep competition. Also, Ford is not the dominant player in the U.S or International auto markets.

I am not concerned about these risks, because the automobile sector has plenty of room for a handful of competitors. This sector also has brand loyalty. Over the past 5-years Ford has consistently been on top in terms of U.S. brand loyalty and customer satisfaction. Ford also sells more trucks in the U.S. than its competition, with the Ford F-150 being the #1 selling truck in America for over 15-years.


Ford has done a fantastic job of innovating new product over the last 5-years. Ford’s investments in hybrid and electric automobiles is significant. Ford now offers more than 10 hybrid vehicles in the U.S. and Ford Hybrid owners rank Ford as an outstanding vehicle. Ford is also revolutionizing their truck line. Last year, Ford introduced an Aluminum framed F-150, which is stronger and lighter than steel.

Internationally, Ford is a top 5 vehicle manufacturer in Europe and #2 in China. Ford has increased market share in China over the past 2-years by stealing market share from General Motors.

The market is prime for Ford and its competition to deliver positive results to their shareholders. The U.S. economy is on the upswing and oil prices continue to drop. This is a recipe for automotive growth. I expect consumers will purchase more new vehicles over the next three years and they will be less concerned with fuel economy. This means more SUVs and trucks, which come at a higher price tag.

On a personal note, I was impressed that Ford did not take government bailout money in 2012. Ford was offered and refused this money; instead Ford leverage assets and took loans to ensure the company future. This bold move by Ford means that the company road to recovery has been slower than its primary U.S. competitors. However, Ford has recovered and I believe Ford’s best years are right around the corner.

Do you own Ford Stock? What are your thoughts on owning Ford Stock or the Automotive sector?

Full Disclosure: Long on F and O.


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