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Thursday, July 13, 2006

Most Widely Held 48 Hour Clock: Ford At A Discount

Stocks: (F)(GM)(TM)

24/7 Wall St. has begun coverage of the 36 most widely traded stocks, eighteen each from the NYSE and the NASDAQ. Most of these stocks trade over 50 million shares a week. This new feature will highlight each of the 36 stocks at least every 48 hours giving investors fresh infomation and perspective on the companies whose shares are most likely to move the broader markets.

Investors who believe that there is even a scintilla of a chance that Bill Ford's "The Way Forward" restructuring of his company's North American operations will work should look at the stock now. The stock fell another 4% today as the company cut its dividend in half to $.05 a share which should save nearly $100 million per annum. The board of the company also took a pay cut and the company announced a new warranty program. One could question the idea of announcing it all in one day. The warranty news is bound to be lost in the frenzy about the dividend.

But, the stock could be becoming attractive, albeit risky. The stock now trades at 7% of sales. GM is at 8%. DaimlerChrysler is at 25% of sales, and Toyoto is at 90%. Ford is, therefore, the least expensive car stock around.

Investing in Ford is basically a gamble that its share in North America is not going to drop below 17% for any length of time and that negotiations with the UAW will continue to reduce costs. Ford is replacing old models with new ones at a pace that that will make its typical "showroom" age" 3.5 years. Ford's goal is to get to showroom age of 1.6 so that it is replacing old models more quickly. Wall Street analysts think that the number is too agressive. The Detroit Free Press quotes Merrill Lynch as saying that the "historically, Detroit has replaced its line-up every 8 years". But, that is changing, and US automakers could be adding new models at the same rate as the Japanese care companies within the next two or three years.

Ford is cheap, very cheap, at the current price.

Douglas A. McIntyre can be reached at . He does not own securities in companies he writes about.

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