Ford Motor Company (F) stock might be the best pick among automakers in 2012. The car giant posted an impressive 17 percent year-over-year sales gain, increased its market share and was the best selling brand in the United States and Canada for 2011.
Ford appears to be gaining steam as December was the best sales month since 2005. The company reinstated its dividend in the same month. This strong show of financial confidence follows a recent debt upgrade of two notches by Standard and Poor's to BB+.
Ford has come a long way, considering it was on the brink of ruin just a few years ago. Facing sliding sales and market share, the company began a massive restructuring in 2005 and soon after faced near bankruptcy during the financial crisis.
A strongly revamped line of vehicles combined with an economic recovery has enabled Ford to come back. The stock price fell from over $30 in 1999 to below $1.50 in the depths of the financial crisis, Ford stock rebounded to over $18 per share early last year.
However, despite a strong year, Ford stock fell 35 percent in 2011 as a slowing economy and fears of recession took its toll on stocks in cyclical industries. The stock current sells at $12.
Industry sales in the United States have steadily improved from a 30-year low of 10.4 million vehicles in 2009 to 12.8 million in 2011. But, sales are still a far cry from average annual sales of nearly 17 million in the decade before the financial crisis.
As a result, experts cite pent-up demand. According to industry executives, the average car on the road is 11 years old. Ford estimates that 50 million vehicles are 11 to 15 years old. As well, credit is easier to get and interest rates are low. The National Automobile Dealers Association forecasts 13.9 million in US vehicle sales for 2012, an 8.6 percent increase over 2011.
Ford might be the best positioned to take advantage. In a recent U.S. News & World Report, five Ford models were ranked a “best buy” for the money, the most of any automaker. Also, smaller, more fuel-efficient vehicles are increasingly popular with gasoline approaching $4 per gallon. Thirty percent of Ford's vehicles get better than 40 MPG.
Although cyclical automakers still face economic headwinds, the European crisis seems to be somewhat contained, for now, and the U.S. economy continues to show signs of strength.
Ford stock currently sells at just seven times earnings compared to an industry average of 12.9 times, according to Morningstar. Analysts average a $16 price target for 2012, a better than 30 percent increase from today's prices.
Ford reports next on Jan. 24.
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