Many of you invest right alongside me and my $100,000 Real-Money Portfolio. And since your money is at stake here, along with the $100,000 in real money that StreetAuthority has given me to invest, I’m constantly monitoring my holdings.

As some of you may have noticed, there’s been some real buzz about one of my core holdings…


After a solid recent move in its stock, Ford (NYSE: F) needed to deliver a strong quarter to maintain its momentum. The just-released fourth-quarter results are a bit shy of the consensus view, and the stock is being hit by profit-taking on Friday.  [Read my original take on Ford here.]

Said another way, Ford’s stock had risen 19% thus far in January, and is now up just 13%. Although the fourth-quarter holds a few potential red flags, the stock pullback is likely just a pause before the upward move resumes. That pause could last a few more months — at least — but investors need to focus on the long-term view and not the short-term trade. I still see this stock some 50% above current levels within 12-18 months.

A tale of two markets
As expected, Ford’s North American results were quite solid. (A specific look at the numbers can be found in the widespread media coverage this stock attracts.) Also, as expected, Ford lost money in Europe. Yet European results were even weaker than I and others assumed. Simply put, European sales were weak in the first three quarters of 2011, but even worse at the end of the year.

Events in Europe will play out in one of two ways.

Sales could only temporarily stall out as consumers await the resolution of the current debt crisis. This implies at least a stabilization of sales at current levels and perhaps a modest rebound later in 2012. Ford is prepping for that scenario by sharply cutting costs in Europe right now, and management anticipates much smaller quarterly losses in Europe later this year. (Ford lost $190 million in Europe in the fourth quarter.)

In another scenario, the European debt crisis spirals out of control and consumer confidence absolutely plummets. I don’t expect such a scenario, but if it plays out that way, shares of Ford would likely drop from the current $12 to around $10.

Masking strength
The unfortunate part of the sobering European outlook is that Ford continues to deliver great results in North America. Costs for raw materials such as steel and rubber have pressured margins a bit, but for all of the items that are under management’s control, Ford keeps delivering. Pricing remains quite firm as Ford avoids profit-sapping rebates, and the company’s R&D efforts are set to deliver another set of compelling new designs this year. Were it not for the drag associated with Europe, this stock would already be in the mid-teens.

The key, as noted above, is to reduce the drag from Europe, which would have the effect of creating higher earnings per share (EPS) later in 2012 and into 2013. Indeed, it was the prospect of surging EPS that had this stock in favor in 2010, and it’s the concern of pressures on EPS that pushed this stock back in 2011.

 There are two takeaways from this quarterly earnings announcement. First, European concerns will likely persist until a resolution has been reached. In fact, investors will likely await the next quarterly report to see if European sales have stabilized at these lower levels and Ford’s regional costs cuts are taking hold and reducing losses.

Second, it’s increasingly clear that Ford’s North American operations haven’t been this strong in decades. Sure, Ford sold more vehicles back in the middle of the last decade, but Ford’s profits per vehicle have never been this good. It’s also important to remember that steadily rising employment underpins expectations that North America sales will keep rising in 2012, 2013 and 2014.

Action to Take –> I’m sitting tight with my current stake in Ford, and I suggest investors do the same. This is a bumpy ride, which you must tolerate if you choose to own out-of-favor stocks like Ford. If this business was fully healthy — across every region — then you wouldn’t have a chance to own such a solid company at such a cheap price.

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