It might be a little hard for some observers to believe, but Ford Motor (NYSE: F) might just be the biggest value in today’s stock market. The historic automaker posted some really nice numbers on December 31, 2015, yet it seems to be vastly undervalued.
Ford is a company that reported $149.56 billion in revenue for the fourth quarter of 2015, yet it was trading at just $13.59 on March 4, 2016. What’s more interesting is that Ford’s revenue has increased dramatically over the past year.
Ford reported a TTM revenue of $141.95 billion in June 2015; that number rose to $145.18 billion in September and $149.56 by December. That means Ford’s revenues increased by $4.38 billion in just six months, a rate of growth that rivals Amazon’s (NASDAQ: AMZN).
Ford’s Incredible Earnings Numbers
Nor was it just revenue that was impressive at Ford for the fourth quarter; it delivered some other impressive numbers:
- $7.373 billion in net income
- A profit margin of 6.6%
- A dividend yield of 4.42%
- A return on equity of 27.96%
- A free cash flow of $254 million
- $62.27 billion in cash and short-term investments
- $14.32 billion in cash from financing
- $16.17 billion in cash from operations
These numbers show us that Ford generates a lot of cash, and it has a lot of float, making it a classic value play. What’s more important is that the company is incredibly cheap right now.
Ford had a market capitalization of $53.96 billion and an enterprise value of $124.56 billion on March 4, 2016. That means it’s trading at less than half the actual value. I do not think that will last for long.
If you are looking to add an automaker to your portfolio, add Ford. It’s cheap, it makes a lot of money, and it pays a great dividend. The company almost seems too good to be true, which is very strange for an American automaker.
Why Ford’s Low Share Price Is a Really Good Thing
This company seems to be proving Ben Graham’s old description of Mr. Market as completely insane. Ford should be trading at around $50 a share, yet it’s trading at just $13.59 a share. Such a low price is not necessarily bad, because it does protect the company from the pestilence known as activist investors.
Naturally, investors will want to know if Ford can repeat the performance. If the news reports are anything to go on, the answer is yes; The International Business Times reported that Ford’s February 2016 sales were seven percent higher than a year before.
In fact, February 2016 was the best month for auto sales since 2000, the publication noted. Analysts credited a perfect storm of cheap gas and low interest rates for the sales increase. Increased demand for larger vehicles, including Lincoln’s SUVs and Ford’s Explorers and pickup trucks, helped drive sales as well. Ford has also rolled out some popular new models, including an improved aluminum body F150 pickup and more variants of the ever popular Transit and Transit Connect vans in recent months.
To add icing to the cake, Ford beat out Toyota Motors (NYSE: TM) for second place in the American auto industry. It also nearly tied General Motors (NYSE: GM) as the U.S. car sales leader. Ford also posted the highest sales growth rate in the industry at around 20%.
Ford Is a Great Value Investment
There are some risks here. The auto sales boom is being driven by lower prices and lots of car industry incentives. It could also be threatened by stagnant wages and low rates of work force participation.
That means any change in the auto market, such as an economic downturn or a rise in interest rates, could cause sales to drop off. Another factor that could be driving car sales is the speculation that the Federal Reserve will raise interest rates and the cost of car finance in the near future.
A sudden drop in auto sales is likely at any time, but it should not affect Ford greatly, because of the float the company is carrying from car financing. If you’re looking for a classic value investment, check out Ford.
Those looking to establish a large position in a value stock had better investigate Ford. It won’t stay cheap for long, but while it is, shrewd investors should be able to establish a large position and reap a nice profit for a very reasonable price.