It was early 1981 and the so-called “Big Three” U.S. automakers were all on their backs. Chrysler Corp. barely dodged bankruptcy – thanks, in part, to $1.5 billion in federal loan guarantees, and Ford Motor Co. would incur $3 billion in losses during a four-year run that ended in 1982.
Chrysler, General Motors Co. and Ford were getting their clocks cleaned – by Japan.
Knowing that California, as a trend-setter state, would be a good place to assess how the U.S. carmakers were faring against the Japanese small-car juggernaut, my newspaper had sent me out from Detroit to assess the outlook for America’s once-dominant Big Three.
From the time I landed at Los Angeles International Airport (LAX) it didn’t look good. The number of imports I counted in the LAX parking lot was dwarfed by the number I saw on the LA freeways.
And in a stunning bit of candor, California Gov. Jerry Brown told me that the future looked bleak for Detroit.
As we all know, the Big Three ultimately beat back the Japanese threat, and weathered several lean periods that followed.
Then came the financial crisis of 2008-2009, and the “Great Recession” that followed. Two members of the Big Three followed the example set by the nation’s biggest banks and accepted government bailout handouts.
One automaker did not.
That company opted to go it alone. It has transformed itself into a high-tech powerhouse, is grabbing market share back from the top Japanese nameplates in their “home market” of California, and just this week unveiled a superb quarterly earnings report and boosted its forecast for 2013.
This company’s stock is up 72% over the past year, but don’t let that scare you off.
The share price of this surprisingly high-tech (and suddenly very cool) company could easily double from here …
From Rust Belt to Really Cool
Most investors look at domestic autos as low-tech creations from America’s “Rust Belt.”
Nothing could be further from the truth. As someone who has toured and closely inspected auto plants throughout the world, I can assure you that today’s cars are rolling beds of advanced technology.
In fact, as one of my colleagues here at Money Map Press remarked earlier this week, had you been pulled over 40 years ago driving a car with today’s sophisticated telecommunications, sensing and GPS-navigation technologies, you might very well have been arrested (and perhaps even shot) as a spy.
From in-dash “infotaintment” systems to advanced sensors to embedded microprocessors and software, modern vehicles are basically four-wheeled computers capable of conducting some very complex tasks.
And that’s why we like Ford Motor Co. (NYSE: F), an automaker that’s come full circle.
It was Henry Ford, after all, who changed the world with his mass-production techniques and made U.S. autos the envy of the world.
Ford has become so technically adept these days that the company is grabbing back market share everywhere – including here in California.
In Northern California, Ford’s sales volume is up roughly 35% measured through the first half of this year. That is nearly four times the overall U.S. market’s gain of 8.4% for this year’s first two quarters.
But those numbers actually understate the success that Ford’s blend of high-tech and eco-friendly vehicles is bringing the company.
Just look at how it’s doing in California with its plug-in C-MAX Hybrid. The small electric vehicle is stealing thunder from the Toyota Prius, the former industry darling.
Here in California, Ford says, the Prius is the number one trade-in for a C-MAX.
And buyers just rave about the Ford hybrid…
“I loved my Prius, but when I test drove the Ford, it was insane,” Erin O’Malley-Minchell recently told the The Wall Street Journal. “Everything about it was that much better than the Prius.”
That kind of word-of-mouth advertising for the C-MAX helped Ford quadruple its slice of the U.S. electric-vehicle market in the past year to a 16% share.
When I look at Ford as a tech play, I can’t help but think of that Fabio commercial for “I can’t believe it’s not butter.”
Only we’re saying, “I can’t believe it’s a tech stock.”
A “Dash” For Cash
Of course, Ford’s sales success isn’t limited to a single line or vehicle type. In fact, it has a new tech system that enjoys such wide appeal across all its models that its research says is a key influencer with 70% of the folks who go with Ford over competing brands.
Ford calls the platform “SYNC.” It’s an in-dash “infotainment” system that is among the most advanced of any mass-market auto firm. To develop SYNC, Ford began collaborating with Microsoft Corp. (NasdaqGS: MSFT) five years ago.
As such, SYNC relies on a version of the Windows operating system specially designed for cars and light-duty trucks. SYNC turns a Ford’s dashboard and steering wheel into a sophisticated gateway for phones and digital music players. SYNC also includes voice-activated, GPS-based navigation and Wi-Fi connectivity on some models.
The success of Sync systems caused Ford to make a recent high-tech acquisition that will help it develop this technology even further. The auto maker bought Livio, a startup based in the Detroit suburb of Ferndale.
Ford wanted Livio’s expertise in streaming information to give it a technical edge against competing brands. Between now and 2018, Ford is expecting a tenfold increase in the number of vehicles with this kind of tech integration, up from roughly 2 million last year.
Meantime, Ford is pushing the boundaries of self-parking technology, particularly at the lower end of the market. Its Ford Focus model is the least expensive car available with parallel-parking assistance.
With this feature, the driver switches on the system while the car is moving at low speed. The Focus then scans for a place to park. Once the onboard sensors find one, the driver brings the vehicle to a stop and gives up control of the steering wheel and watches as the car swings into place.
Super Tech, Super Cheap
If you want more proof that Ford has gained respect as a tech player, check out a story that’s been making the rounds: Ford CEO Alan Mulally’s name keeps coming up as possible successor to Microsoft CEO Steve Ballmer when he retires next year.
That would make Mulally the first outsider ever to run Microsoft. On paper, at least, the idea makes sense. Before joining Ford, Mulally was a senior executive at The Boeing Co. (NYSE: BA), the global jetliner leader that’s made sophisticated aircraft technology a hallmark of its success.
Mulally won’t discuss his plans beyond his commitment to Ford through the end of 2014. However, if Mulally does move to Microsoft, I don’t expect it to hurt Ford’s chances over the next few years. At 68, Mulally likely wouldn’t stay much beyond next year anyway. And any CEO worth his salt devises a succession plan and develops talent to fulfill it.
The bottom line is that Ford has become a great stock comeback story. In the depths of the Great Recession in early 2009, the stock traded in the $1.50 range. It’s up more than 700% since then to around $17.50 a share.
If Ford shares just returned to their high of roughly $35.15 a share established back in April 1999, the stock would almost exactly double. By harnessing high tech, Ford has become much more of a growth company.
And there’s every likelihood that could happen. Because the stock is flat out cheap. It boasts a Price/Earnings to Growth Rate (PEG) ratio of 0.76. Anything below 1.0 is a signal that a stock that’s trading on the cheap.
And here’s another: Ford shares trades at 10 times forward earnings, a discount of more than 40% discount from the market. It has a return on stockholder’s equity (ROE) of 33%, more than twice the 15.5% rate for Google Inc. (NasdaqGS: GOOG).
To me, Ford qualifies as a tech investment because it is using technology to improve the quality, safety, reliability, and fuel economy of its vehicles — not to mention making them more user friendly in a world where just about anyone buying a new car these days is already computer savvy.
Our mantra here at Strategic Tech Investor is that “the road to wealth is paved by tech.”
Recommending an auto stock as a “stealth tech stock” is probably the best (and most literal) affirmation of that statement that I’ve seen.
And if contributes to your wealth – as we believe it will – it will also be one of the most rewarding recommendations that we’ve made.
See you all next week.
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