the Contrary Investor

August 14, 2007

Have you driven a Ford lately?

Filed under: Ford,Long — contraryinvestor @ 9:51 am

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Political cartoonists, they are by definition the people who tell you which way the wind is blowing now and… are completely useless in making educated guesses about the future. (except as contrarian indicator)

Ford, who drives a Ford anymore? The tires fall off the cars, the back windows fall out. They over paid for Aston Martin, Jaguar and Land Rover and now they’re selling them off at bargain basement prices. Can this company get any worse?…. Wait a minute, can this company get any worse?

It wasn’t all that long ago that people were saying similar things about Boeing. Does anyone remember this, back around 2000? Boeing would never be able to compete with Airbus. Now its Airbus who is flying on life support. The simple fact of the matter is restructuring a company and getting it to perform relatively better isn’t really all that difficult. Shut down plants, fire people, dispose of under performing assets. Any MBA student could tell you to do these things. Granted, actually implementing these changes is more difficult. Particularly at a company the size of Ford. Turning around that company isn’t even as easy as steering the Titanic, its more like steering the iceberg.

Yet as CSFB noted in their July 27, 2007 research report: “Ford’s second quarter results were dramatically stronger than expected, with earnings per share at a positive $0.13, versus the Street consensus of a loss of $0.36, and our forecast of a loss of $0.26. Profits were better than expected in every operating region, with the most significant outperformance coming from North America, where the company reported a pretax loss of $279 million, versus our forecast loss of $850 million, and the consensus loss of greater than $1.0 billion.” Still CSFB rates Ford a “hold” along with every other analyst on the street, save 2. Personally I consider this a good thing, for one thing as Gordon Gekko said “..Analysts don’t know the difference between preferred stock and live stock.” The analysts will only come around to Ford once the stock has already begun to perform well again. As far as I’m concerned that’s too late for me to invest, I want to anticipate the turn around and already be in when it happens. Then as the analysts upgrade the stocks they will act as the wind at my back.

Signs abound of a major change in the US automotive industry. First off Cerberus Capital Management just bought Chrysler. Their ability to negotiate with the UAW will do a lot of Ford’s hard work for them. By wrangling concessions for the UAW Cerberus will make things easier for Ford to do the same. Further, Cerberus, Wilbur Ross and David Tepper are accumulating control stakes in major auto suppliers, most notably Cerberus and Appalosa are fighting over Delphi. As these aggressive players strip out the costs from the auto suppliers Ford stands to benefit from additional cost savings. The presence of all of these seasoned value investors in the auto sector tells me that I’m not mistaking a dinosaur for a value investment.

Simply put the Ford investment is a matter of sitting back and letting Ford finish its restructuring like IBM, Boeing, Apple, Coke and innumerous other turn around stories before them. This is a LONG TERM investment. Just to juice my returns, I’ll be buying the Ford Jan 2010 $10.0 Calls (FOAB). That’s it. I’ll read the news, the research and the K’s & Q’s but mostly I’ll put it under the mattress and wait for 2010. Ben Graham would be proud.

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1 Comment »

  1. Master, I come as an open book.

    Comment by Ross — August 14, 2007 @ 9:56 am


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