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Lincoln Looks to Power Ford Growth

“Sometimes you gotta go back to actually move forward.

I don’t mean going back to reminisce or chase ghosts. I mean going back to see where you came from. Where you’ve been, how you got here, see where you’re going.”

Those lines are, of course, from one of Matthew McConaughey’s oddly existential Lincoln commercials – the most visible part of Ford’s (F) concerted effort to rejuvenate the brand.

And in spite of (or, perhaps, thanks in part to) being the target of some excellent mockery by Jim Carrey and Saturday Night Live, the ads seem to be working. Ford itself even appreciated the extra publicity.

In March, Lincoln sales jumped 7% – far outpacing the 0.5% overall growth figure for U.S. automakers. Could it be that Ford has taken McConaughey’s advice? And could Lincoln be the force that puts Ford back on top?

Reinventing Itself, One Vehicle at a Time

Much of March’s success can be attributed to two popular cars, the MKC and the Navigator. The MKC sold over 2,000 units last month, while the Navigator saw sales increase a whopping 47%.

In addition, the company debuted its new Lincoln Continental concept at the 2015 New York International Auto Show. Ford says this latest chapter in the Lincoln journey signals the future of “quiet luxury.”

Meanwhile, Ford has also been hard at work rebuilding its flagship brand, with the new aluminum F-150 pickup leading the way.

Ford claims that the retooled truck is 700 pounds lighter than its predecessor – giving it 20% better fuel efficiency, along with improved acceleration and towing power.

Consumers appear to be on board, as January was the F-150’s best month for sales since 2004. According to Ford, the new truck is sitting on dealer lots for just 18 days, a fraction of the 105-day average for light-duty, full-size pickups.

Now, Ford’s overall sales slipped 3% in March compared to 2014, a disappointing result after exceptional sales growth early in 2015. However, the silver lining is that retail sales were actually up 1%. Fleet sales were down due to a tight supply of the new F-150, but a new plant now open in Kansas City should help Ford match the intense demand for its most popular truck.

While sales may have slowed in March, they remain on pace to beat 2014. Plus, average transaction prices were up $2,000 from one year ago. That’s a good sign for investors, especially considering Ford’s valuation…

Cheap Stock, Strong Yield

Indeed, Ford’s stock is awfully cheap right now.

Ford’s EV/EBITDA – our favorite valuation metric – shows the stock trading at a massive discount, while its P/S and forward P/E and are also lower than the median of its peers. The chart below compares Ford to a group of 20 global automakers, including General Motors (GM), Honda (HMC), and Toyota (TM):

Ford Shares Are Trading at a Discount

On top of that, Ford sports a very impressive 3.75% dividend yield, nearly twice the median of its peers (2.05%). Better yet, the dividend is growing.

The company recently bumped its dividend by 20%, which brings its three-year dividend growth to a sizzling 200%. And Ford has plenty of cash to work with, which means growth is likely to continue going forward.

It’s hard enough to find a stock trading at a discount in this market, but finding one that also pays a hefty, growing dividend? That’s something special.

Best of all, the dividend has been covered more than three times over for the last two years, and Ford boasts over $10 billion in cash from operations for the 2014 fiscal year. Check out the chart below to see how Ford’s dividend and free cash compare to its peers:

Cash is Still King

All told, Ford stock is trading at a discount right now, and investors can pocket a very reasonable dividend while management continues to revamp the business.

Of course, Ford isn’t the only U.S. automaker that looks to be fairly cheap… but the difference between Ford and GM is night and day. To put it in perspective, Ford’s latest recall affects about 220,000 cars, with no deaths attributed to the issues. On the other hand, GM recalled 27 million cars last year, with at least 51 deaths attributed to the flawed ignition switch found in many of those vehicles.

Bottom line: With a number of exciting new offerings and a strong outlook, the future appears bright for Ford.

Good investing,

Chris Worthington

Chris Worthington

, Editor-in-Chief of Income

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