Ford UAW Negotiations: Can a 412-Horsepower Mustang Help Push Ford's Stock to $17 in 2012? - Stock Review

Have you considered a Ford (F), lately? Not just the company's vehicles -- have you considered the stock? If not, perhaps you should, if you can tolerate moderate risk.

Ford appears to have reached a breatktrough in contract negotiations with the United Auto Workers: fingers are crossed -- the union appeared likely to ratify the contract, after it received a wave of support over the weekend, The New York Times reported Sunday night., and the initial ballots counted Monday points toward a contract approval. Moreover, if the contract is approved that would be another data point in favor of purchasing the stock. Even so, the caution light is flashing: this is not your run-of-the-mill stock purhase -- Ford's stock is not for rookie investors, or for the squeamish.

I'm Reiterating my Buy call for Ford (F), first discussed here on Oct. 4, 2011 at a price of $9.05. Ford is still in the midst of recovering from the most challenging market setback in the auto industry since the 1930s: the Great Recession, 2007-2009, which pressured margins, and eliminated literally millions of potential U.S. customers, as a result of the large lay-offs that pushed U.S. unemployment above nine percent.

Add intense competition, excess capacity, declining demand for its pickup trucks, and hardly ideal credit market conditions for potential new vehicle purchases, and you have a headache on your hands, to be sure.

But Ford under CEO Alan Mulally successfully restructured, discontinued unpopular models, and successfully brought new models to market including a zero-compromise, 31-miles-per-gallon (MPG), 305-horse power (HP) Mustang, and a 26-MPG. 412-HP, 5.0-liter Mustang A 412-HP car that gets 26 MPG? I'd say Ford is back. Also, Ford's willingness to let go of the Mercury brand should beef-up the Lincoln brand's sales -- one reason why Ford's 2011 revenue should increase four to seven percent in 2011.

Another positive data point: Ford and the UAW Tuesday agreed on a new, tentative four-year contract that will allow the company to invest almost $5 billion in U.S. plants and create at least 5,750 jobs.

Margins should also increase in 2011, and cost-reduction efforts should offset higher raw material costs.

Ford closed Monday down 16 cents to $11.40.

Further, Ford will likely benefit from Toyota's recent problems (quality, distribution) -- giving F a good chance to increase market share.

Technical Analysis: Technically, Ford's stock has been in a classic bear hug throughout 2011-- a staircase down from $19 in January to about $9.30 in early September. Even so, the shares are favored here: $9 is probably the bottom, and Ford recently zoomed through major, psychological resistance at $10. Ford's shares should trade above $14 by late winter, as it becomes more-clear that the U.S. economic expansion is strengthening; and above $17 by the end of 2012.

The Thomson Reuters First Call FY2011/FY2012 EPS estimates for F are $1.92 to $1.76, and that 2012 EPS estimate looks about 10 percent low, according to my analysis.

Stock Category: Once a blue-chip stock, Ford is now a growth play. Ford is for investors who have the patience to await the inevitable return of the auto sector -- i.e. even stronger U.S.-based sales, as the U.S. economy starts creating 150,000 jobs per month. There's a 30 percent chance you'll lose your entire investment with F over a 10-year period.

2011 Outlook: I view Ford as a long-term play, but if investors are looking to sell Fwithin the year, it's probably best to take your profits after it rises to $11-11.75, if it fails to clear $12.

Stock Analysis: I consider Ford to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50 percent position in F now, and another 25 percent in one month; under any circumstances, I wouldn't buy more than 75% of my F position before January 2012 and I'd put a sell/stop loss at: $4.25.