Masking strength
The unfortunate part of the sobering European outlook is that Ford continues to deliver great results in North America. Costs for raw materials such as steel and rubber have pressured margins a bit, but for all of the items that are under management's control, Ford keeps delivering. Pricing remains quite firm as Ford avoids profit-sapping rebates, and the company's R&D efforts are set to deliver another set of compelling new designs this year. Were it not for the drag associated with Europe, this stock would already be in the mid-teens.
The key, as noted above, is to reduce the drag from Europe, which would have the effect of creating higher earnings per share (EPS) later in 2012 and into 2013. Indeed, it was the prospect of surging EPS that had this stock in favor in 2010, and it's the concern of pressures on EPS that pushed this stock back in 2011.
There are two takeaways from this quarterly earnings announcement. First, European concerns will likely persist until a resolution has been reached. In fact, investors will likely await the next quarterly report to see if European sales have stabilized at these lower levels and Ford's regional costs cuts are taking hold and reducing losses.
Second, it's increasingly clear that Ford's North American operations haven't been this strong in decades. Sure, Ford sold more vehicles back in the middle of the last decade, but Ford's profits per vehicle have never been this good. It's also important to remember that steadily rising employment underpins expectations that North America sales will keep rising in 2012, 2013 and 2014.
Action to Take --> I'm sitting tight with my current stake in Ford, and I suggest investors do the same. This is a bumpy ride, which you must tolerate if you choose to own out-of-favor stocks like Ford. If this business was fully healthy -- across every region -- then you wouldn't have a chance to own such a solid company at such a cheap price.
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David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC owns shares of F in one or more if its “real money” portfolios.
This article originally appeared at www.streetauthority.com.