Strategic refocusing boosts Ford (F)

by Dr. Melvin Pasternak, editor Double-Digit Trading

Ford Motor Company (F), publicly traded since 1956, was the only major U.S. automaker to avoid bankruptcy during the 2008 to 2009 financial crisis.

Ford didn't just skirt bankruptcy -- it has begun to flourish. Here's a look at the bull technicals and fundamentals behind this company.

This July, the world's fourth-largest automaker reported its best quarterly profit since 2004. The company also achieved strong earnings gains for the fifth straight quarter.

Ford's growth is a result of strategic refocusing. Under the helm of chief executive officer Alan Mulally, the company has successfully cut costs by limiting the type and number of vehicles produced.

Ford also now offers more upscale vehicles pre-loaded with all the "bells and whistles." Voice-activated phone and stereo systems, GPS systems and heated leather seats are some of the features of a new Ford -- at a higher price tag.

The strategy of increasing profit margins by adding high-end features has worked. Since July 2009, Ford's total car sales have increased +13.3%, to nearly 176,000 vehicles year-to-date.

Over the same period, buyers have paid nearly $2,000 more than before for their cars. Ford expects its market share will increase in the coming years.

Also helping Ford increase sales is its strong safety record. The company recently earned seven top safety accolades from the Insurance Institute of Highway Safety Awards. This is the highest number of awards given to a single car company.

Technically, Ford is showing strength.. In January 2010, Ford formed a small double-top near $14.55 in March and April of this year.

Unable to move past the $14.55 level on the second try, Ford then broke its major uptrend line off the November 2008 low. As Ford fell, an intermediate downtrend line formed off the stock's April peak.

However, in late June of this year, the stock found support near $9.75 and has been rising since. During the July 19 trading week, Ford broke the intermediate downtrend line. Ford now appears poised to move higher.

Important resistance is just above the upper Bollinger band at around $14.55. However, if Ford can pierce this resistance level, the stock could again test $19, a level not seen since 2001.

The indicators are bullish. MACD is on the verge of giving a buy signal. RSI has been in a downtrend. However, the downtrend line has just been broken. Stochastics is on a buy signal.

Fundamentally, Ford shows strong earnings growth potential. On July 23, Ford reported outstanding second-quarter results that topped analyst estimates. Revenue for the period rose +16.8% from a year earlier to $31.3 billion.

During the second half of 2010, Ford plans to launch several new models. As the company continues to expand gain market share, analysts project full-year 2010 earnings will go from zero dollars in 2009 to $1.56 per share. By 2011, earnings are expected to increase another +17.3% to $1.83.

In addition to solid growth potential, Ford is attractively valued on several metrics. Its trailing price-to-earnings ratio (P/E) is 7.6. Ford's price/earnings-to-growth ratio (PEG) (P/E divided by growth rate) is a bargain basement 0.44 (7.6/17.3). A PEG of 1.0 or under shows strong value.

Ford also leads its peers from a price-to-sales (P/S) standpoint. The U.S. carmaker has a P/S of 0.4. In comparison, HMC and TM have slightly higher P/S ratios of 0.6 and 0.5, respectively.

Coupled with attractive valuation, Ford is taking aggressive steps to improve its balance sheet. During the second-quarter of 2010, the company retired $7 billion in debt, bringing its total automotive debt down to $27.3 billion. With strong momentum, Ford expects to move from a net debt to a net cash position by the end of 2011.

Given Ford's solid growth outlook, attractive valuation and strong technicals, I now recommend long positions.

Learn more about this financial newsletter at Dr. Melvin Pasternak's Double-Digit Trading.