This Automaker Screams Buy Now

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So far, I've purchased shares of Ford (NYS: F) three times in my Messed-Up Expectations portfolio. Oddly enough, despite spacing them out over three months, all the purchases were at roughly the same price of about $14.60. My thesis for buying hasn't changed, but the price has gotten a lot more attractive thanks to what I believe is an overblown worry.

Buy Ford, reason No. 1
All year long, Ford's sales have continued to grow. Year to date, they are up 11.8% to a total of 1.43 million vehicles. Of the top 10 selling vehicles in America, Ford has three of them: the F-Series pickup in first place, the Escape in eighth, and the Fusion in 10th. Rival General Motors (NYS: GM) has the Chevy Silverado pickup in second and the Chevy Cruze in fifth. The Camry from Toyota (NYS: TM) , Nissan Altima, Dodge Ram pickup, Hyundai Sonata, and Accord from Honda (NYS: HMC) round out the top 10. All of these have seen sales growth year over year to date except the Accord, the Camry, and the Cruze.

Reason No. 2
Ford continues to pay down its debt, recently knocking another $1.8 billion off the total. That brings the automotive debt down to $12.2 billion, less than half the $26.1 billion level just two years ago. Plus, it's been in a net cash position since the end of 2010. Keep doing that and show that it can continue to operate well, and it will regain its investment-grade rating in relatively short order, which opens its shares to purchase by many more institutional investors.

Reason No. 3
Ford expects to begin paying a dividend sooner rather than later. In a recent investor conference in Frankfurt, CFO Lewis Booth said, "We think our shareholders have been very patient and as our balance sheet has improved we are beginning to feel more confident about resuming paying dividends." Once that happens, even more institutions will begin to buy shares and that will put upward pressure on the stock price.

The concern
The elephant in the room is, of course, the United Auto Workers union. It is currently in contract renewal negotiations with Ford and appears to be playing hardball. Its members have authorized a strike, if necessary, which may be a standard negotiating tactic, but I think it sets an unnecessarily adversarial tone for the negotiations. The UAW did a great job in helping the company survive its near-death experience just a couple of years ago. But start getting greedy again, and Ford could find itself right back into trouble.

It's this concern that I believe is helping to hold the share price down at its current level. At last night's close, the priced-in expectation for free cash flow growth was less than 0% annually for the next decade (at my usual hurdle discount rate of 15%). For a company that is doing so many things right, that is unduly pessimistic, in my view. For instance, if expectations were to let free cash flow grow at 5% per annum for the next few years, shares would be priced around $16, more than 50% higher than the current price.

I expect Ford and the UAW to reach an agreement fairly soon (though hopefully after I buy the shares!). After all, the two agreed to continue negotiating even though the contracts actually expired earlier this week. Once that's done, the share price should recover and be further lifted as the reasons above play out. Therefore, on Monday, the MUE port will expand its position in Ford.

Ford's a pretty big manufacturer. If you want to balance that with the names of two small-cap manufacturers that are too small to fail, clickhere.

At the time this article was published This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios).Fool analyst Jim Mueller has an option position in Ford. He's an analyst for the Motley Fool Stock Advisor newsletter service.The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of General Motors and Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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