Ford Bull's Rebuttal
by Paul Larson ([email protected])

As expected, my associate Rick came up with some interesting and thoughtful reasons as to why he thinks Ford is stalling. He was not as punny as I thought he would be, but I also have not read his rebuttal yet. In any case, there is plenty of material that the bears have to work with here, and I won't disagree with many of the negative prognostications. But take a look at the larger picture as well as the longer view and the fundamentals don't look nearly so dire.

First, the company may have lost some of its pricing power with the Taurus, but there is little evidence that Ford has lost its pricing power with its meat and potatoes: trucks. And with nearly half the automobiles produced in North America now being trucks, it is not a sector to ignore. Neither is Ford's strong branding in this arena to be brushed off with their immensely popular F-Series.

If I read the newspapers alone and didn't look at the valuation, I might think that Ford would be a bad investment here, too. Take a look at some of the recent headlines concerning the company:

"New Auto Sticker Prices Fall."
"Possible Ford Defects Probed."
"Ford Argentina to Cut Production."
"The Car Industry Crashes Into Deep Recession."
"Mexico Car Industry Crashes Into Turmoil."
"Ford Chairman and Vice Chairman to Retire."

Pretty gloom and doom, isn't it? But Wall Street, it seems, has already priced much of this bad news into the stock already, which is why you can buy Ford, even with all these problems, at a multiple of profits less than half that of the broader market.

Besides, the international markets are not going to stay in a recession forever. Ford may be cutting production abroad, but that is because the company is now much more tuned into not just growing the top line. Like many companies in this day and age, Ford has realized that cutting costs can maintain profitability during turbulent periods. And when things eventually turn around in Asia and South America (they will, it's just a matter of time) Ford will already have the capacity in place to start churning out cars and trucks when it becomes more profitable to do so.

One of the reasons the "Dogs of the Dow" and the "Beating the S&P" approaches have winning track records is that many times the market sees the bad news, such as the flailing Asian economy, but discounts it too heavily. I believe this to be the case here with Ford.

Maybe some will disagree with the idea of mentioning Ford as a "Dow-like" stock even though it is not listed in the Industrials. Nevertheless, keep in mind that the company is the second largest in the nation in terms of sales. This means 29 of the 30 Dow components have less revenue than Ford. Companies like this just don't stay down for long, Fools.

I'm not going to lie. Ford has some difficult issues to deal with here, and Rick brought up many of the salient ones. But as my original argument stated, by many simple and common valuation methods -- such as price to earnings, book value, sales, as well as dividend yield -- Ford is cheap.

Next: The Bear Responds