Many investors say that you "shouldn't try to catch a
Well, I did, and it hurts.
I made a big, bold $12,500 bet on
Ford Motor (
when I launched my
$100,000 Real-Money Portfolio
and am now paying the price with a 16% loss thus far in
Six months ago, I suggested that
were now too cheap and significant upside is ahead. Yet I broke a
cardinal rule of bottom-fishing: Buy stocks only after it appears
as if the
estimates has been removed, and forward estimates are likely to be
stable or even rise.
Yet Ford's announcement last week that international operations
worsened in the second quarter, from an already dismal performance
in the prior recent quarters, tells you that it was simply too
early to buy this stock.
I had been sitting on a decent gain with Ford, but am now
underwater. The fact that Ford is likely to lose more than $500
million in foreign operations -- in the second quarter alone -- is
an event I simply did not anticipate when the year began.
The key question is: would I buy this stock now with fresh
money? Normally, that answer would be no. As noted above, Ford's
international operations are so weak that there is a real
possibility the second half of 2012 brings even lower earnings
forecasts. And if that were the case, I'd be selling my current
holding in this stock.
But I'm not a seller. That's because earnings pressure may not
be as great as many fear. After all, Ford is very profitable in
North America and should do even better in the quarters ahead as
the company's new Escape SUV and new Fusion sedan hit showrooms
this summer and fall (early reviews in car magazines are extremely
favorable). More to the point, this stock is very, very
How big a hit?
To say that Ford is profitable in North America and unprofitable
everywhere else might give the impression of a company operating
close to break-even. Yet the truth is that Ford, as a whole,
remains nicely profitable. And as I've noted before, it sports a
. A quick look at revised earnings estimates does not paint a
picture of distress.
We can assume that analysts at UBS are overly aggressive. They
have lowered their
forecasts but remain among the most
on the Street. I think it's wise to focus on Citigroup's view,
which is the most conservative in this group. After last week's
drop, shares now trade for around six times Citigroup's projected
2013 profits and around five times 2014 projections. Those
multiples drop below four when looking at
Meanwhile, despite major troubles in foreign markets, Ford
remains as a cash-producing machine. As a result, analysts think
Ford's debt will remain constant at around $12 billion, but cash
should rise from $23 billion at the end of this year to around
$31.5 billion by the end of 2014. With shares currently in the
doghouse, management would be wise to put a lot of that cash into a
stock buyback. It will be interesting to see how management
addresses this issue on the upcoming second quarter conference
Risks to Consider:
U.S. operations remain quite resilient, but a
in the United States could lead estimates to come down even
Action to Take -->
Nothing has shaken my faith that Ford may be capable of earnings
approaching $3 per share by mid-decade, which in turn would push
this stock up toward $20. In effect, value investors with a
two-year time horizon should still be able to double their money
with this beaten-down American icon.
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-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of F in one or more if its "real money" portfolios.
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