Analyst: Ford’s Stock Could Double
Analyst: Ford’s Stock Could Double
There’s no doubt that the Ford Motor Co. has been beset by troubles of late, but at least one market expert thinks Ford shares are a good buy and could double in price within the foreseeable future.
James K. Glassman, a regular columnist with Kiplinger’s magazine and senior fellow at the American Enterprise Institute, points out that Ford lost more than $7 billion in the 9-month period that ended last Sept. 30. The company is burdened by high costs, and sales fell 8 percent last year.
[At the beginning of this year, a share of Ford stock was selling for only $7.50, down from over $25 during the late 1990s.
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Glassman believes the low stock price presents an opportunity. "Ford’s market capitalization is just $15 billion, while its sales are $166 billion,” Glassman writes in Kiplinger’s.
"In other words, a dollar invested in Ford stock buys more than $10 worth of Ford revenues. A stock is usually considered a bargain if a dollar of investment buys a dollar of revenues.”
Similarly, Ford’s cash outpaces its market cap, and a dollar invested in the stock buys about $1.50 of Ford cash.
Glassman notes that Alan Mulally, a former Boeing executive, was brought in to run Ford. If Mulally can boost the company’s earnings to just $2 a share — still far below the late 1990s level — then even at a modest price-earnings ratio of 8, "the stock would double,” according to Glassman.
[Editor's Note: 5 Super-Safe Cash Investments — Beat Stocks by 500%]
Glassman’s tempered optimism about Ford relies on what he calls "faith-based investing,” which involves faith that certain companies have brands and histories that are so strong, they have a good chance of thriving when redirected.
He cites several examples: IBM stock rose from $21 to a high of $139 after Louis V. Gerstner Jr. was brought in to run the company; Apple stock soared after Steve Jobs returned to the company, rising from less than $4 a share to its recent level of $95; and Kmart — now called Sears Holdings after buying Sears — rose from less than $20 in 2002, before Edward Lampert arrived, to $178 by this past Jan. 16.
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