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Firing On All Cylinders

08/03/2010 1:00 pm EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Mark Skousen, editor of Forecasts and Strategies, says Ford Motor’s turnaround is picking up steam as the company reported its best earnings in years.

[Before the recent rally,] Wall Street and global markets continued to struggle in the summer of 2010. Lots of negative news pushed the Dow [Jones Industrial Average] briefly under 10,000: virtually no growth in private-sector jobs, a fall in consumer sentiment and manufacturing output, and evidence that China—the powerhouse during the recent years of financial and economic turmoil—also could slow down.

Prices, costs, and mortgage rates are declining. What would cause another bear market in stocks? The key is a slowdown, or outright decline, in business activity and investment.

Indeed, there is growing evidence that the economy is slowing. Granted, the Federal Reserve still is pursuing ZIRP (its zero interest rate policy), but with commercial loans falling behind, the supply of money has dried up (M2 has gone nowhere this year). US manufacturing indexes declined last month. Corporate profits are still strong, but no longer consistently beating expectations.

One stock that rallied sharply last month is Ford Motor (NYSE: F), America’s number-one car maker and my AOL “stock pick of the year.” It now is up [more than] 30% from our recommended price, and is trading above its moving average.

It just reported blockbuster second-quarter earnings. Revenue rose 17% to $31.1 billion, and earnings climbed to $2.6 billion, or 68 cents a share. A year ago, Ford lost $554 million, or 21 cents a share. That’s quite a turnaround. It was the fifth-consecutive quarterly profit and best earnings report in more than six years for Ford.

“We are ahead of where we thought we’d be after this excellent first half,” stated [chief executive officer] Alan Mulally.

Its turnaround has been picking up steam through increasing sales and market share in the United States, even as the market remains sluggish. Ford’s sales in the United States rose 28% in the first half of 2010, nearly double the industry average. Its market share rose to 16.9%, from 16.4% a year earlier. It now expects to sell millions more [vehicles in the US and] abroad, with the introduction of its new subcompact Ford Fiesta, the Ford Explorer crossover vehicle, and the Ford Focus compact car.

It also is improving its cash flow position, and its ability to handle its massive debt in excess of $100 billion. The company recently announced key executive appointments to further sharpen its senior leadership team's focus on the "One Ford" plan and to support the organization's growth around the world.

“They have been making all the right moves. It’s been impressive,” Rebecca Lindland, an analyst with the research firm IHS Automotive, said. “They just have an unbelievable amount of momentum right now.”

(The stock closed above $13 Monday. Full disclosure: A member of the editor’s family owns Ford stock—Editor.)

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