Ford Motor Company (NYSE:F) just released its February sales numbers, and the market responded with a disapproving glare.
Sure, this month’s figures were disappointing — U.S. sales of Ford and Lincoln dropped 2% compared to February 2014 — but despite the overall decline and the resulting 3% drop in Ford stock since then, there are several reasons to believe in F shares right now.
Ford SUVs, Trucks Pave the Way
It’s no secret that Ford (along with every auto company) makes higher margins on its larger and more expensive models. Just because a car is twice as big doesn’t mean it costs twice as much to make … but that sure doesn’t stop dealers from charging a whole lot more, not to mention it’s easier to up-sell deeper-pocketed customers on costly features.
And this is where we can start to peel the worry away.
Looking deeper, we see that Ford sold 32% more Explorers than last February. That’s the vehicle’s best number in nine years.
Yes, Ford sales were hit by its weak inventory of the new 2015 F-150, but the future still looks bright for Ford’s most profitable product. The newest version of the truck features an aluminum alloy body, making the car lighter and adding to its fuel efficiency (the new most efficient F-150 gets 22% better combined gas mileage than last year’s model).
This new design came with serious growing pains, but a good one to have — Ford hasn’t been able to make these trucks fast enough. To ease production delays, Ford will start building F-150s at its Kansas assembly plant. (Currently they’re made exclusively at the Dearborn facility.) The Kansas plant is scheduled to begin production this month, and Ford execs expect U.S. dealers to be fully stocked with these new monsters by June.
Ford also is gearing up for production on its redesigned SUV crossover, the Edge. The company has added 400 people to the team at the Ontario assembly plant to build the vehicles and is prepping to launch the Edge domestically this spring, as well as in 100 countries worldwide. According to Ford, global demand for SUVs is up 88% since 2008, so there should be plenty of willing buyers.
Between Ford’s continued push to make more fuel-efficient heavy vehicles and oil prices still sagging, Ford should see plenty of traction in its bigger-margin large vehicles.
The New Pony
In addition to the bright SUV numbers, Ford also saw a huge increase in sales of its redesigned Mustang, up 32%. Making it the best February for Mustang since 2007.
Ford recently announced that the new Mustangs will finally hit Australia later this year. Ford already has taken 1,200 orders for its signature muscle car. (The Mustang also comes in an eco-friendly boosted 4-cylinder.)
Bottom Line
Among all these positive drivers, Ford stock is a good value, too, boasting a better P/E ratio than General Motors Company (NYSE:GM). Plus, investors are being paid to wait for a rebound via a generous dividend yield of 3.7% that’s tops in the auto industry.
The market is taking a bearish stand on Ford stock, but when you see what’s going on inside Ford Motor Company, there’s little doubt that F is well-positioned for a sweet spring rebound.
As of this writing, Scott Michnick did not hold a position in any of the aforementioned securities.
