F Word O.K. Again
It’s safe to buy Ford again. Ford as in the F share. After trading at close to $15 in April, it could be had below $10 yesterday. A bargain. Or so it seems.
As we all know, Ford does pretty well selling cars, but without the help of D.C. sugar daddies, their balance sheet is a mess. Ford ended the first quarter with a debt of $34.3 billion. The market was worried that Ford would issue additional shares to pay off that debt, which would seriously dilute current stockholders. So the stock pushed the “Down” button.
In April, Ford paid off $3b in debt, which provided the lift to $14.57. Then, with new payments looming, the share went South again. Today, Ford wiped another $4 billion in debt off its overloaded balance sheet, reports Reuters. Today’s move will save more than $470 million in annual interest payments, Ford said. Their debt load is now down to $27b. Ford has forecast a solid profit for 2010.
According to the New York Times, “Ford’s debt load has been analysts’ biggest concern about the automaker, which has been profitable for four consecutive quarters and projects positive cash flow this year. The announcement suggests that Ford will report strong results for the second quarter, which ends Wednesday.” Buy Ford before someone else does.
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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F was a bargain in November 2008 when it was trading just over a buck a share. Twotone
If Ford can keep paying down its debts at a rate of over a billion bucks a month it will do just fine. Also, we should take a moment to note that this might be the first time in history a TTAC blog posting has recommended buying Ford stock. A moment of silence please, the Ford Death Watch seems to be over :).
The common shares dropped from $15 to $10 and the company's a bargain? Hardly. The thought process that champions "a $5 equity is cheaper than a $50 equity" is a fallacy that led to folks' investment "accounts" being smashed during the downturn. It's from the same line of thought as "I'll spend an hour online looking for a TV for $50 cheaper but won't spend an hour or two a week on my retirement account because I don't understand it." And while I concede that buying Ford in the $1-$2 range was ultimately a good call because of risk-laden capital appreciation, it was most assuredly not a *bargain* at those prices.
So in three months, Ford has whacked $7 billion out of its $34.3 billion debt. That's a reduction of their debt by more than 20%. Now that they've righted Ford's ship in terms of product, it's clear that Mullaly & Co. understand how critical it is for Ford to reduce the debt that allowed them to survive restructuring and carmageddon. $7 billion is a lot of debt to pay off in only 3 months. I suspect that as long as Ford keeps making money they'll be trying to reduce that debt down to normal and healthy levels as quickly as they can.