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On January 6, we maintained our Neutral recommendation on Ford Motor Co. (F - Analyst Report), despite its higher structural costs and economic weakness around the world, based on its improved third quarter earnings and growth opportunities from its expansion in the emerging markets.

Why Maintained?

Ford posted a 17.6% rise in earnings per share to 40 cents in the third quarter of 2012 from 34 cents a year ago. Reported earnings surpassed the Zacks Consensus Estimate by 10 cents per share.

The growth in earnings was attributable to impressive results in its North American and Asian operation. Total revenue slid 3.0% to $32.1 billion but exceeded the Zacks Consensus Estimate of $31.0 billion.

Following the release of the third quarter results, the Zacks Consensus Estimate for 2012 went up by a penny or a meager 0.7% to $1.35 per share. Meanwhile, the Zacks Consensus Estimate for 2013 declined 0.7% to $1.47 per share. With the Zacks Consensus Estimates for both 2012 and 2013 remaining almost flat, the company now has a Zacks Rank #3 (Hold).

Ford is expanding its foothold in the emerging global markets including Argentina, Brazil, China, India and Thailand. The company expects that 70% of its global expansion will be in Asia, primarily China and India. It anticipates that these investments will eventually bear fruit with a 50% improvement in sales to 8 million vehicles in 2015. Small car sales as a percentage of total sales are expected to go up to 55% by 2020 from 48% at present.

Ford continues to focus on hybrid vehicles. It plans to invest $135 million for its next-generation hybrid-electric vehicles. The company has launched all-new C-MAX, C-MAX Energi plug-in hybrid, new Fusion Hybrid and Fusion Energi plug-in hybrid fuel-efficient electric vehicles in 2012. It expects that hybrid sales will improve owing to the new launches and plans to triple production capacity of electrified vehicles by 2013.

Ford has been replacing its older vehicles with new models to provide customers with smart technology, outstanding safety, excellent fuel efficiency and high quality standards with greater comfort. This initiative will further increase commodity and structural costs affecting the company’s results.

Other Stocks to Look For

Besides Ford, other stock in the automobile sector that are currently performing well include General Motors Company (GM - Analyst Report), which carry a Zacks Rank #2 (Buy).

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