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Ford as a Potential Value Play

The share price of Ford Motor Co. (F) has fallen 43% in the past year to 8.01, from 14.14 as of January 3rd 2005. It is quite possible that "Mr. Market" (as Benjamin Graham affectionately anthropormophizes the overall stock market forces) , has underestimtated Ford's resiliency.

Ford is by no means out of the water yet, and a survey of top auto executives released today showed that 76% of auto executives polled believe that at least one major auto-related company will file for bankrupty in the next year.

However, Bill Ford is an industrious and innovative individual. Analysts believe that there is an as yet unannounced facet to his turnaround plan that has been in the works since 2003. Ford Motor Co. will announce some of the details of these restructuring plans which include layoffs and plant closures, on January 23rd.

There is already some positive news about Ford to be gleaned from the financial wires, as well as from some close analysis of the stock's statistics and balance sheets. Ford has increased year-over-year car sales for the first time since 1999, by focusing on new models such as the Ford Fusion, Mercury Milan and Lincoln Zephyr.

Statistically, there should be an existential floor to the stock price at or near the stock's current value. The cash per share value stands at 8.09, while the book value per share is currently 7.53. Interestingly enough, Ford's 52-week low price was most recently 7.57, a mere 4 cents above its book value per share. If Ford were a member of the Dow Jones Industrial Average, it would definitely qualify as one of the Dogs of the Dow stocks, with a current dividend yield ratio of an astounding 62%!

If Bill Ford can pull this company through with some bold new restructuring campaign, then this stock would definitely be on my watch list if it drops any further at all, and once more nears its book value of 7.53.

A Bullish Start for the New Year!

On the first day of trading of 2006, the Dow closed up 130 , and the Nasdaq was up 38. This spike was mostly due to the release of the December 13th minutes from the last Federal Reserve meeting.

Some dates to keep in mind regarding the Federal Reserve:

• January 31st - Alan Greenspan retires as Fed Chair, most likely a rate bump up.
• March 28th - first Fed meeting led by new Fed Chair Ben Bernanke, possibly last Fed rate hike for the time being.

Other financial news of interest:

• Manufacturing in December grew at a slower pace than November. Though this is by nature bearish news, it was to be expected. Manufacturing peaked in November due to hurricane rebuilding efforts, and is now leveling off at a new plateau.
• Intel Corp. (INTC) is beginning an aggressive marketing campaign to kick off its focus on a new Core processor, and a drive to immerse its chips into smaller digital devices.
• Viacom Inc. (VIA-B) split from CBS Corp. (CBS) and began trading under its own ticker today. Some analysts are worried that CBS Corp. will become sluggish, without a handhold in the new types of media markets. However, if CBS Corp.'s stock price decreases enough in value, it could become a potential takeover opportunity at some point for another media company.

Seeing the Forest for the Trees

There seems to be a slightly larger chorus of bears creeping into financial commentaries of late, with negative predictions for the year ahead.
However, I believe that we will have at the very least, net positive growth in the indices for 2006.

Over at MSN Money, Melissa Lee polled seven Wall Street firms on their 2006 predictions. Five out of the seven had resoundlingly positive expectations for the S&P 500.

The folks over at Forbes.com seem to think that growth, innovation, and the positive stature of large corporations will drive productivity.

Even Jeremy Siegel, Ph.D. over at Yahoo! Finance believes that there is undervaluation to be found in the market, stating that:
"Earnings growth rates have maintained double-digit increases for a record 13 consecutive quarters, yet stock prices have crept up much more slowly. This has compressed the price/earnings ratios of stocks, that all important measure of stock valuation. "

So what's the bottom line?

Yes, there are still stocks that are extremely overvalued, and it is rare that I would consider any stock with a price/earnings ratio higher that 20. But on the flipside, 2005 marked a time of record stock buyback programs from companies that are flush with cash, and these buyback programs are still ongoing. The Fed will most likely cease raising short term lending rates at or near 4.5%.

So how do I feel?
At the moment I would say that I am cautiously optimistic.

Let's see where the financial news of the first week of 2006 brings us.

Six Stocks for 2006

~ Happy New Year! ~

David Gardner and Motley Fool analyst Seth Jayson spoke on NPR about their six stock recommendations that they believe will beat the market in 2006. This program ran on December 23, 2005, and you can listen to it here.

Continuing on that theme, here are six stock picks that I believe have a good chance at beating the market in 2006. I will keep these picks in mind for my virtual million dollar portfolio when I begin trading on January 5th, 2006:

Pfizer Inc. (PFE) - Mentioned in the previous post, Pfizer took a beating last year, partly due to the Vioxx troubles associated with Merck. Pfizer's price/earnings ratio is still a little high at 21, but its dividend yield ratio is 17.6%. Pfizer is one of the Dogs of the Dow stocks of 2005.

Verizon Communications (VZ) - Verizon is another stock that appears on MSN Moneycentral's Dogs of the Dow list from 2005. Verizon is currently priced relatively cheap, with a price/earnings ratio of only 10.21. Its dividend yield ratio is 17.9%.

William Wrigley Jr. Co. (WWY) - This stock does have a higher price/earnings ratio than others on the list, coming in at 27.82. However, Wrigley's traditionally trades at a p/e of about 30, so this is a relatively cheaper price. Plus, Wrigley's higher price/earnings can be overlooked for the longer term investor, when compared to their astounding long range performance.

Allstate Corp. (ALL) - Allstate has a reasonable price/earnings ratio of 19.6. Their stock price was hit hard by the hurricane season last year, with the price dropping to 52 dollars per share in September and November. However, Allstate is in the business of insuring against these types of disasters. In fact, recently the company has announced premium price increases. This has provoked little fanfare from the public, which would seem to point out that Allstate is now spending publicity capital garnered from the hurricanes.

3M Company (MMM) - Also reasonably priced, with a price/earnings ratio of 19.2. In April of last year, 3M Company was trading at a value of 84 dollars per share. This dropped off to finally rest at 70 dollars per share in November. With the announcement of new CEO George Buckley and a debt/equity ratio of only 0.07, 3M Company should be a safe bet.

Bank of America Corporation (BAC) - Bank of America has a low price earnings ratio of 11.12. They just finished their acqusition of MBNA, which makes them "the nation's No. 1 card issuer when measured by balances." Their price/book ratio is only 1.84, and their debt/equity ratio is 0.99. Bank of America should also be buoyed by the likely stoppage of the Federal Reserve's increases in the short-term lending rates.

Though these are indeed all relatively attractive stocks at the moment, I will of course reevaluate based on changes in the market conditions when I begin trading with the virtual million dollar portfolio on January 5th.

~ Have a happy and a healthy new year,

and may only good things come to you! ~