10 Reasons Why I Don't Like Ford

 | Dec 28, 2012 | 3:00 PM EST
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Until Thursday, Ford (F) shares had risen seven days in a row. They are up about 18% for the year. Of 25 Wall Street analysts who follow the stock, 18 recommend it.

But I don't like it, and here are 10 reasons why.

First, the competition is stiffening. General Motors (GM) and Volkswagen lately have added to their worldwide market share, and Toyota (TM) is likely to climb back from a drop caused by the Japanese tsunami and a sudden-acceleration problem.

Second, Ford's debt is nearly eight times stockholders' equity. Yes, I know that Ford borrows to help finance the purchase of its cars, but borrowing for a good reason doesn't change the fact that its debt is substantial.

Third, the quarterly dividend of a nickel is skimpy, and the dividend yield of 1.6% is nothing to write home about.

Fourth, Ford's revenues are expected to decline slightly this year, and to rise only mildly in 2013.

Fifth, analysts estimate Ford will earn $1.34 a share this year, less than it earned in 2011, which was less than in earned in 2010.

Sixth, Ford has a minuscule market share in China, while GM and Volkswagen are both strong there. China is competing with the U.S. for status as the world's largest car market.

Seventh, Ford shares sell for 0.4x revenue. Does that sound like a bargain multiple? It isn't, not in the world of auto manufacturers. Over the past 10 years, Ford's average price/revenue ratio was 0.17, so it's now more than double its historic average.

Eighth, the stock's popularity with analysts could backfire. When analytical opinion is too positive, it's difficult for a stock to get a boost from ratings shifts.

Ninth, Ford has declined in the latest annual ratings of quality by Consumer Reports. (I think highly of the magazine's testing procedures and ratings. Not coincidentally, I was executive editor of the publication from 1984 to 1986.)

Finally, Ford has had several recalls in the past year. This month the National Highway Traffic Safety Administration announced it is intensifying an investigation into the possibility that loose floor mats in three Ford models may produce unintended sudden acceleration by jamming the accelerator pedal.

I am not a completely disinterested observer in assessing Ford. I own shares of General Motors personally and for clients. I also own shares of two auto-parts makers and one replacement tire maker. I have no position, long or short, in Ford shares.

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