Auto stocks are in the driver’s seat in this week, and you can attribute the renewed interest in the sector to GM’s IPO. The bailed-out automaker’s shares are expected to garner very strong investor demand when they go public on Thursday, as many people want to get in on the ground floor of the iconic, yet troubled automaker’s future fortunes. The way I see, however, investors should be looking at rival Ford Motor (NYSE: F) if they really want their portfolios to keep on trucking.
Over the past year and a half, Ford’s turnaround has been nothing short of stunning. Just 18 months after reporting a $1.4 billion quarterly loss, Ford reported record earnings that blew away Wall Street’s expectations. The stellar earnings beat caused investors to put the pedal to the metal on the stock, as Ford’s shares surged some 15% the week it announced earnings.
Why You Should Focus on Ford
Unlike GM, Ford has a host of other positives going for it, making this Detroit icon the much better stock for investors. Here are my top five reasons to buy Ford shares now.
1) Outstanding Leadership. Driving the operation at Ford is the über-capable CEO Alan Mulally. The turnaround he’s engineered at Ford is being called his “hall of fame” performance. Mulally has managed to make Ford a profitable operation again, an amazing feat when you consider just how beaten down the auto industry was in the aftermath of the Great Recession.
2) Growing Market Share. Ford’s sales soared 20% in October, with truck sales doing even better. In fact, truck sales are up 28% since the beginning of the year. In all, Ford’s market share jumped to 16.7%, overtaking Toyota Motor (NYSE: TM) for the No. 2 spot in the industry.
3) ZERO Employee Benefits Debt. Unlike GM and its huge fiscal employee-benefit overhang, Ford just paid down the final $3.6 billion it owed to its retiree health-care trust last week. That gives the automaker a clean slate when it comes to revving-up its future bottom line.
4) A Wholly-Owned Finance Unit. Ford held on to its finance arm, Ford Motor Credit, which continues to show robust growth. This is in direct contrast to GM, which sold its finance arm (GMAC) in 2006 in a bid to raise capital. In fact, on Oct. 26, Ford Credit reported third-quarter pre-tax operating profit of $766 million, an $89 million improvement from the third quarter of 2009. In addition to the bottom-line bump Ford Motor Credit gives the company, the finance arm also gives Ford an advantage over the competition in financing vehicle loans.
5) Shrinking debt. When it comes to paying down debt, Ford is paying down obligations full-throttle. Remember, Ford is the only one of the Big Three U.S. automakers that didn’t take a bailout from the government, and that didn’t declare bankruptcy. Now, Ford’s aggressively using surplus cash to strengthen its balance sheet.
Perhaps the best reason to like Ford here is the company’s embrace of innovation. Ford’s future growth will be fueled by two new launches: growing sales from a Chinese joint venture and an aggressive plan to produce more fuel-efficient cars.
I expect Ford’s earnings and share price performance momentum to continue through 2011. Surely, that momentum will last well after GM’s IPO fervor runs out of gas. If you’re an investor looking to take your portfolio for a ride, then choose Ford — before the shares surge on the draft of GM’s IPO.
