You asked, and I’ve responded. A number of readers have expressed interest in getting a handle on my very best investment ideas. So I figure the start of the New Year is a fine time to deliver. 
 
I’m calling it by the simple moniker of “Dave Sterman’s Top Plays” right now, but stay tuned. This portfolio, which I’ll publish for free on the StreetAuthority website for a limited time, is just a preview of what’s to come.

The stocks I select, which will be bought with $100,000 of real money to invest, courtesy of StreetAuthority, will play to a theme that I’ve always sought out with my top investment recommendations. It’s what I like to call “playing offense while playing defense.”

Simply put, I love to find stocks that appear quite undervalued — perhaps by 50% or more.

But I hate to lose money. Just hate it.

If you’ve ever lost big on a speculative high-flyer, then pay attention. I pursue the distinct goals of capital appreciation and capital preservation. Those may sound contradictory — but that’s the only way to consistently make money in stocks. Three steps forward and three steps back — which is what happens when you don’t pay attention to the potential downside of a stock pick — is not what I am aiming for.

In a moment, I’ll share with you my first pick in this new portfolio, which will illustrate this “offense and defense” approach.

First, a few housekeeping matters. Each week, I’ll deliver a fresh investment idea while providing updates on prior recommendations in the portfolio. [Go here to sign up for free to ensure you get them delivered to your inbox as soon as possible.]
 
I aim to put that $100,000 to work in short order. That’s because I’m bullish on stocks and don’t want to miss out on the rally I see coming in the months and quarters ahead. I expect substantial volatility, as the market bursts to the upside over a period of weeks or months, and then experiences another round of scary sell-offs. I won’t be shy about selling into rallies and loading up in times of weakness. So there will be a degree of portfolio turnover here, and it’s crucial that you pay attention to those portfolio updates.

So what’s to come down the road? Stay tuned. I’ve got ambitious plans to deliver a winning, insightful advisory, and I’ll be spending the next couple months working behind the scenes to get it ready for you. For now, feel free to trade right along with me (actually, you will be able to trade ahead of me, as I will always give readers 48 hours notice before buying or selling any of the stocks I recommend).

Without further ado, here is the first pick in my new model portfolio…

The best company in a rebounding industry
Investors are often faced with a conundrum. Do you invest in the best company in an industry, or the cheapest stock in that industry?

In the case of Ford Motor (NYSE: F), you don’t have to choose.

The company is in the midst of a remarkable turnaround — one that still has legs.

And its stock is awfully cheap.

The real reason to own this stock now: it’s very timely. All signs are pointing to an even better year for automakers in 2012.

Recall that U.S. car and truck sales plunged from roughly 17 million vehicles in 2007 to less than 11 million vehicles by 2009. (Ford and other car makers responded by slashing expenses and proved their ability to make profits on a much smaller sales base. I discussed Ford’s impressive cost structure in this article.)

U.S. auto and truck sales perked up a bit — to 11.6 million — in 2010, and it looks as if they will have risen to 12.8 million in 2011. Most important, sales have been especially impressive in recent months as car showrooms are now seeing more foot traffic as the employment picture improves. Sales were robust in October and November, and apparently will finish the year on a high note as well. That’s why auto-industry rating firm J.D. Power & Associates sees sales hitting 13.6 million units in 2012. Some industry watchers, such as Morgan Stanley, now project 14 million in sales.

In Ford’s case, the company sold 2.3 million vehicles in North America in 2007, just 1.6 million vehicles by 2009, but a healthier 2.1 million vehicles in 2011. I expect that figure to hit 2.3 million in 2012 and perhaps 2.6 million by the middle of the decade.

According to Consumer Reports, Ford’s cars and trucks are now as reliable as the top brands from Japan.

Meanwhile, Ford’s stock remains utterly unloved. Shares have fallen from roughly $19 early in 2011 to a recent $10.75. In fact, they’ve been stuck in the $10 to $12 range since early August — even though the industry has built a head of steam since then. Part of the blame for the weak stock performance goes to Wall Street. The analysts who follow the company are simply moving too slowly to anticipate what Ford’s results will look like in the quarters and years to come. They missed the boat in 2008 and early 2009, when shares of Ford moved up sharply from the sub-$2 level, and they’re missing it again…

These analysts see Ford’s profits actually falling roughly 15% to $1.60 a share in 2012.

They’re flat wrong. I’ve done the math.

Assuming Ford simply maintains current market share and industry sales hit 13.5 million, Ford will earn $2 a share — or more.

That’s not exactly a stretch. Ford has earned $1.73 in the past nine months alone. In the fourth quarter of 2011, analysts expect earnings per share (EPS) of just $0.26.

How do you square that dim view with this recent comment from Citigroup about December sales? “Our checks suggest that, like November, Ford may stand out again on healthy retail market share and industry outperformance on both pricing and incentive activity.”

Ford is on the cusp of launching a pair of major new products, the Escape crossover and a new Fusion sedan, which should help cement market share gains. Ford held 14.2% of the North American auto market in 2008. That figure rose to 15.3% in 2009, and then 16.5% in 2010, where it’s since held.

Of course, we’re talking about 2012 and beyond as the driver for this stock. Not only do I think Ford will earn in excess of $2 a share in 2012, which is more than 25% ahead of the current consensus, I also believe Ford will be an earnings powerhouse by the middle of this decade. Once investors realize Ford is holding up well now, they’ll start to think about what the automaker can earn when industry sales hit 15 million vehicles.

By my calculations, that industry size works out to potential earnings power of $3 a share. And we’re talking about an $11 stock.

Of course, Ford needs to deal with troubles in Europe, where the company gets 25% of its sales. Industrywide, European auto sales are expected to fall roughly 4% in 2012 to around 13 million, which would be the fifth straight annual decline. Economists expect Europe to slip into recession this year, but then to start growing again in 2013.

Europe may not be a great source of profits for Ford in 2012, but neither will the region lose Ford money as management is in the midst of a series of cost-cutting steps. Look for Ford to make money in Europe in 2013, and plenty more profits in 2014.

The downside protection –> Shares of Ford have firm support in the $10 to $11 range, trading at less than six times likely 2011 profits.

Even in the recent tough years, Ford has been generating more than $12 billion in operating cash flow each year. More important, Ford now has more cash than debt for the first time since 1974.

The company hopes to build a $20 billion ($5 a share) cash war-chest by the end of 2012, which will be able it to support future buybacks and dividend hikes.

The upside triggers –> I spot three catalysts ahead.

First, I’m looking for a better-than-expected December quarter, the results of which will be announced in late January.

Second, I expect the clouds that loom over Europe to be resolved in the coming months. Concerns that Europe will drag Ford down should evaporate at that point.

Third, I expect Wall Street to respond to the beginnings of a rebound in Ford’s stock by publishing increasingly bullish reports, which should boost the share price. All signs point to steady or rising market share, which will be a key theme for analysts in 2012. This stock only works when the chorus of analysts sings its praises.

Action to Take –> While I will seek to seize quick gains with other ideas in my $100,000 real-money portfolio, Ford’s shares have such a long runway that this will be a stock to buy and hold for an extended period. In light of my deep conviction in this stock, I am allotting an inordinately large portion of the portfolio to this pick — 1,160 shares, worth roughly $12,500 — which I will buy on Wednesday, Jan. 4.

Remember, I’ll always give you at least 48 hours notice before I make a trade, so you’ll have ample time to buy before I do. Who knows? You may even get a better price.

P.S. — As I stated earlier, this is the first of what will be a regular feature on StreetAuthority.com — but it will only be available for free for a limited time. And since I’ve got $100,000 in cash to invest, you can be sure I’ll be on the lookout for the absolute best ideas for major upside, while still looking to limit downside as much as possible — just as I always have.

To ensure you get updates on my $100,000 portfolio as soon as possible — in addition to anything else I write for StreetAuthority —  I urge you to go here to sign up for my latest picks. You’ll get them delivered to your inbox as soon as they’re published.