“Want a real shocker? This is one I can’t believe I would ever say anything good about on this show ever. Ford Motor. Yeah, Ford. The stock is up an astonishing amount today. Some of it’s an upgrade, from the company under the leadership of Detroit outsider Alan Mulally, he’s the man who turned around Boeing, is now making a comeback that would make Henry Ford proud. If not Laurence Olivier in his best work playing a Ford-like character…When was the last time we saw this kind of strength from an automaker of all things? I think it was back when a model-T rolled off the assembly line.” CNBC’s Mad Money on Wednesday, April 22, 2009.
Well, if Cramer was trying to be shocking, he could have advocated buying General Motors (GM), but putting your name behind any automaker is certainly notable. In this case, CNBC’s Cramer is gushing about the management of Ford (F), which has far outshined its counterparts at GM and Chrysler through this crisis. With G.M. knocking on the doors of bankruptcy and Chrysler possibly not too far behind, Ford could easily be the only automaker that was able to stand on its own when auto buyer do return to the car lots. This was certainly a factor in Goldman Sachs (GS) upgrade of Ford to its conviction buy list yesterday, with a price target of $6.
Ford stock got a nice double digit percentage gain out of the upgrade, which continues the excellent performance of the stock recently. In the last 3 months, Ford stock is up about 144% to $4.40. However, even though Ford’s management team lead by Alan Mulally has been more proactive that the other U.S. automakers and their could be market share gains from troubled competition, there are still quite a few issues that Ford bulls should keep in mind. First, auto sales have been persistently weak, and although some would say a rebound is imminent, nothing is guaranteed in this market. Furthermore, much of the recent share price appreciation has come after a major debt restructuring move, and while lowering their debt was necessary it also increased the share count by more than 20%.
Credit Suisse (CS) released a research not on Ford that states that they believe the company is not worth more than $3. At Ockham, we are somewhere in between the bullish and bearish notes, as we have Ford as Fairly Valued. Fundamentals such as revenue and cash flow are certainly extremely weak compared to historical norms for this company, as the company is still hemorrhaging cash, possibly $5 billion in this quarter. Obviously, we will know a lot more about this situation when the company released earnings on Friday morning, but for now, the near term direction of Ford shares are not being driven by fundamentals.
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