While many investors like to pursue hot stocks, others prefer investing in companies in the midst of an operational turnaround.

 

#-ad_banner-#In today’s market, I see potential for one high-profile stock that has been underperforming the market lately: auto industry icon Ford Motor Co. (NYSE: F).

 

Ford’s post-recession sales momentum has cooled a bit in recent months. For example, the company’s February sales in the United States fell roughly 2% year over year, well below analyst forecasts for nearly a 6% gain.

 

However, main rivals Toyota Motor Corp. (NYSE: TM), General Motors Co. (NYSE: GM) and Honda Motor Co. Ltd. (NYSE: HMC) all boosted U.S. sales in February, posting year-over-year gains of 13%, 4% and 5%, respectively. This news wasn’t the type that inspires confidence in Ford, especially following a tough 2014. Sales fell a modest 2% to $144 billion and per share profits fell by more than half to $0.80 a share for the year.

 

So what’s been holding Ford back?

 

For one thing, the automotive division stumbled in North America last year, posting declines in revenue and pretax profits of nearly 5% and 22%, respectively, in the region. The problem was Ford just couldn’t produce enough F-150 pickups to meet demand following temporary plant shutdowns in order to retool for production of this year’s new aluminum-body model.

 

The investment should be well worth it, though. The new F-150 already seems to be gaining traction with consumers, based on how quickly available units are selling. In February, for example, they typically sat on dealer lots for only 17-to-18 days before being sold, compared with 20-to-34 days for similar GM and Toyota models.

 

The new F-150 should help propel Ford to years of solid growth. The lighter aluminum construction saves roughly 700 pounds, which increases fuel efficiency, towing capacity and overall handling — all qualities that should appeal to consumers. Production is expected to reach full capacity this month and management says dealers will be fully stocked by June.

 

Ford is also working to overcome obstacles in foreign markets — especially Latin America and Europe, where the automotive segment lost more than $2.2 billion last year. Looking ahead, Latin America may remain a sore spot because of pronounced currency weakness and economic instability in some parts of the region. Import restrictions in Argentina and the inability to exchange Venezuela’s currency for dollars were among 2014’s greatest obstacles in that region.

 

Management expects more red ink in Europe this year, too. Ongoing investments in the region included heavy bets on Russia, which is struggling due to economic sanctions. However, management still sees Russia as a promising long-term prospect where Ford can expand its current sales base of nearly two million vehicles a year.

 

Moreover, results in Western Europe could soon surprise to the upside. The region’s economy was already showing signs of increased strength before the recent launch of a massive stimulus program by the European Central Bank (ECB). Thanks to that program, the ECB is forecasting 1.5% GDP growth in Europe this year, 1.9% next year and 2.1% in 2017 — in line with the region’s historical expansion rate and significantly better than last year’s anemic 1% growth.

 

Ford is set to capitalize on this, thanks to a multi-year, multi-billion-dollar investment in its European operations. Most recently, this included a 40% boost in production capacity at the company’s Valencia, Spain production facility. The plant is expected to churn out 400,000 vehicles this year and should ultimately be capable of 450,000 annually, management estimates. Also, 25 new and upgraded vehicle launches are planned for Europe during the next five years.

 

An 8% jump in European auto sales last year suggests Ford’s massive investment in the region is finally beginning to bear fruit. Some analysts say European operations will break even next year, but investors shouldn’t rule out of the chance of a substantial profit in 2016, either.

 

Asia-Pacific operations are profitable already, with sales of nearly $11 billion and pretax earnings of $589 million last year. Yet at only about 8% of Ford’s overall business by revenue, future expansion potential should be considerable.

 

Like other U.S. car makers, Ford focuses, in particular, on the vast and growing auto market of China. To date, the company has spent about $5 billion on new production facilities there, with six such facilities currently operational and two more scheduled to open this year.

 

In 2014, Ford sold one million vehicles in China for the first time, and management expects the number to hit at least 1.2 million in 2015. That equates to a 6% market share, or double the 3% share Ford held in China three years ago. Looking ahead, economical Ford vehicles like the Escort should be popular with China’s rising middle-class, while Ford’s luxury Lincoln brand should gain appeal among China’s growing ranks of wealthier consumers.

 

Risks To Consider: Despite new stimulus measures, Europe’s economy is still vulnerable to stagnation or even recession. Also, China could experience a “bumpy landing” in which its economy slows more quickly than expected. Either scenario could throw a wrench into Ford’s growth plans.

 

Action To Take –> Ford’s management believes 2015 will be a breakout year for the company and chances are they’re right. Huge investments in domestic, European and Chinese operations should all begin to pay off handsomely by the second half of this year and drive long-term growth. Even a pretax profit at the low end of management’s 2015 guidance range of $8.5-to-$9.5 billion would be a 35% improvement from last year. Such a result could precipitate solid gains in Ford’s stock, which currently sports a 3.8% dividend yield.

 

Oftentimes the little ideas are the big game changers — something like an aluminum body truck. My colleague Andy Obermueller devotes his time to identifying game-changing trends and the companies that should benefit from this. This has led readers to investments that went on to gain triple-digits. More recently, Andy has been talking about the profit potential for Apple’s newest technology Apple Pay — and more importantly the company’s key suppliers. If you haven’t heard about this opportunity yet, then I urge you to check out his comprehensive report on how to profit from this technology, by clicking here.