Smart Investing


September 14, 2012


Ford, the Fed and following up

The Federal Reserve has left the green light on for investors by announcing it will purchase $40 billion of agency mortgage-backed securities per month.

I remember, many years ago, when I first got in the business, a saying that went something like “don’t fight the Fed.” The quote was based on interest rate movements, but I think it applies here as well.

It has been my feeling since 2009 that Federal Reserve Chairman Ben Bernanke will do everything he can to prevent a depression, with or without the help of the White House and Congress. Obviously, it would be easier having help from down the street in Washington, but I think Bernanke is doing a great job keeping things going.

I’m enjoying the 16 percent gain so far this year in the S&P 500, but I must admit it is becoming harder to find great buys like I could 12-18 months ago.

One thing I don’t do too often — actually, hardly at all — is to follow up on buy or sell recommendations of the past. Because I stated there aren’t as many great buys as there used to be, I thought I would step back in time and revisit a company that I wrote about in the past: Ford Motor Co. (NYSE: F). It's a popular choice for many, because it made it through the Great Recession and did not file bankruptcy like General Motors Co. (NYSE: GM).

I wrote about Ford on Nov. 8, 2011, when the stock was trading around $11.32. On Friday, the stock was trading around $10.40, an 8.1 percent decline.

I was not at all thrilled with the prospects for Ford going forward; I was concerned about competition and some major debt issues. When I looked at the mean estimate of analysts for earnings per share going forward, back then the number was $1.73 for the year ending December 2012, and I pointed out that 90 days prior, it was $2 per share.

Today, and getting closer to December 2012, the earnings-per-share number has declined to $1.26, well below $1.73 from less than a year ago. I can now see the mean of 21 analysts who are looking at $1.49 for December 2013, which also has fallen from $1.72 90 days ago.

I pointed out in my Ford column that the company has a huge debt problem. It was $99 billion at the time, and while it was down from $117 billion one year earlier, I saw no comfort in $99 billion in debt and equity of only $5 billion.

Today, I’m sorry to report, that debt has increased slightly to $100 billion. I was hoping to see a continuation of a debt reduction plan as Ford continued to sell cars. On the bright side, the equity now stands at $17 billion, but you’re still left with a debt to equity of 588 percent.

With the debt increase, I wondered what caused the equity to triple to $17 billion. It was the result of a $7 billion increase in long-term investments and about $11 billion in other long-term assets. If you do the math, this won’t quite add up — it is due to other items in assets and liabilities.

Another item I discussed was the positive cash flow, which, at the time, was $6.2 billion, down a couple hundred million from the previous year. For the same period this year, it has dropped another couple hundred million to $6 billion.

I also pointed out that, while I would never buy this company with so many problems, I hoped it would continue to pay down debt at the current rate and resist the pressure to pay a dividend. Ford did not do this — it buckled under pressure and began paying a dividend on Jan. 27. While only 0.5 cents and with a current yield of just under 2 percent, this cost the company around $760 million per year. It should not pay a dividend and should not increase its long-term investments and other assets by $18 billion.

While Ford is building some great cars and sales are up, as an investment I would still not hold this high-debt company in my portfolio. I really want to see Ford succeed, but I will do it from the sidelines.

When I was in Phoenix on business last week, I was asked a good question, which I think anyone who has a financial adviser should ask: How much of my time on a weekly basis is spent on looking at and understanding the investments in my client's portfolio?

It didn’t take me long to answer because I love reading and analyzing, on a regular basis, the investments in my client’s portfolio. The answer for me was an average of 20 hours per week, and I know well what is in all my clients’ portfolios. Make sure your adviser does as well. If not you could be headed for some disappointing returns in the years to come.

Have a question or a company you'd like me to take a look at? Email me at

Wilsey is president of Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760. Information is provided by Reuters.


September 14, 2012