Ford Stock Price Climbs to New Highs; Going Higher?

Ford Stock Price Climbs to New Highs; Going Higher?

By Michelle Krebs March 15, 2010

Financial blogs have been all abuzz this past week as the price of Ford Motor Co. stock climbed to new highs.

Ford's stock has been trading at more than $13.40 a share in recent days, approaching its highest point since late 2004 when it was selling for nearly $15 a share. And its current price is a far cry from the couple of bucks it was selling for only a year ago. In fact, in November 2009, it sold at less than $8 a share.

The question now facing shareholders is hold as the prices goes higher or sell and take the money and run? For would-be Ford shareholders, did they miss the boat or is Ford still a buy?

Two schools of thought on Ford exist.

The big red flag being waved by Ford naysayers is about its huge debt. Ford mortgaged the farm to restructure and revamp its product line. It now has $34 billion of debt to repay, with a less than glowing credit rating. At the same time, competitors General Motors and Chrysler had many of their liabilities wiped out by their bankruptcy filings and they will re-pay governments that loaned them money largely in stock equity when they go public.

Still, many analysts remain upbeat about Ford. They like the automaker's gains in sales and market share -- Ford outsold Toyota and General Motors in the U.S. last month -- its strong product line and its vastly improved quality, particularly in light of Toyota's problems and Honda's recalls.

They claim Ford's debut is manageable as it has $10 billion in cash, made money in the last quarter, stands to gain $2 billion from the sale of Volvo and higher sales, market share and heftier profit margins will help it pay down its debt that comes due in a couple of years. Ford's improved financial picture should earn it an higher credit rating, they say, lowering its debt.

In a column posted on Bloomberg News Monday, John Dorfman, chairman of Thunderstorm Capital in Boston, wrote that he avoids negative net worth companies, which represents about a third of all U.S. stocks including Ford, like the plague. Bankruptcy is a risk but low debt confers freedom and gives a company options. "High debt is like a straightjacket that can push companies into choices they would prefer not to make," he wrote, adding they may sell prized assets, fail to develop new products or make acquisitions because they can't afford it.

But he hints that he makes an exception with Ford because its net worth was only narrowly in negative territory as of December 31, with shareholders' equity of negative $2.34 a share. Ford, whose stock trades at about $13, is having a good quarter, and most likely will have positive equity soon. -- Michelle Krebs, Senior Analyst and Editor at Large 

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.