Kicking the Tires at Ford Motor

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Kerkorian gave up ultimately, but not before he had scored a decent profit on his 10% stake in GM.

And then he turned his attention and interest in Ford. On Apr. 28, 2008, he made a surprise disclosure that he had bought a 4.7% stake. But in this case, Kerkorian did not apply any pressure on management because he had confidence in Ford CEO Alan Mulally as an effective turnaround executive. Kerkorian admired Mulally's previous job at Boeing (BA), where he took charge of a major restructuring at the aerospace giant and succeeded. In the autumn of 2006, William Clay Ford Jr. stepped down as Ford's CEO and recruited Mulally to succeed him, with the principal task of saving Ford and retuning it to long-term health.

At its current price, Ford's stock is "an absolute steal, considering Ford's assets, growth prospects when the economy turns around, and the aggressive turnaround efforts of management being pursued by CEO Alan Mulally," says Georges Yared, founder and chief investment officer of Yared Investment Research. Mulally is "setting the table beautifully for an effective rebound, and that's the obvious reason why Kerkorian is determined to increase his stake in Ford," he adds. Yared believes that by yearend 2009 the turnaround efforts will bear fruit. "The stock could easily double by then," he predicts.

Likely Rewards for the Patient

Independent research firm ValuEngine on May 20 issued a buy recommendation on Ford, based on information it gathered and its own calculations. "We feel that Ford has the probability to outperform average market performance for the next year and exhibits attractive company size, price/sales ratio, and market valuation," said ValuEngine in a report. One of Ford's latest plans is to introduce the new Ford Fiesta small car in North America by early 2010, plus a sporty European hatchback model. The vehicles are being produced at a $3 billion plant in Mexico, where it will make pickup trucks for the Mexican market and small cars for North America. Ford expects the market is headed toward more small cars and intends to devote a lot of its increased production capacity to such vehicles. The Fiesta will be the first family of small cars that Ford will introduce, in Europe and Asia in 2008 and in the U.S. in 2010.

To be sure, there isn't much enthusiasm in the analyst community. Michael Ward of Soleil Securities is the only one among 14 major analysts who rates Ford a buy. His 12-month price target is $10.

Standard & Poor's Efraim Levy, who rates Ford a hold, expects Ford to post a 2008 loss, on top of a deficit of $1.40 per share in 2007. He says CEO Mulally has enhanced Ford's improvement efforts.

Certainly any more adverse news about the economy and oil and gasoline prices could drive down Ford's stock. But conversely, any good news about the economy and a boost in auto and truck sales—plus reduced fuel costs—could also power an awesome runup in Ford's stock. Steer clear of Ford if you are looking for easy, short-term gains. But for patient long-term investors, Ford's stock price is compelling.

Note: Unless otherwise noted, neither the sources cited in Gene Marcial's Stock Picks nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.