Ford: Revving Up for a Bailout

Investors drove shares of Ford Motor (F) higher Tuesday as chastened executives from Detroit headed (by car) to Washington in another attempt to secure a bridge loan package for the staggering U.S. auto industry.

Ford Chief Executive Alan Mulally did a bit of rehabilitative public relations work as well, offering to work for $1 a year if the emergency funding is approved. He earned $21 million last year and last month memorably remarked "I think I'm good where I am," when queried on a pay cut.

"We do get it," Mulally said in a Tuesday interview on CNBC. "We're asking for some help to continue this transformation to bring out the vehicles that people really do want, that are good for our environment, that people really do value. We feel that we do have a good plan."

Under the current request, Ford would get about $9 billion, but the company emphasized that it would be best if General Motors (GM) and Chrysler got some government help too.

"Because our industry is an interdependent one, with broad overlap in supplier and dealer networks, the collapse of one or both of our domestic competitors would threaten Ford as well," the company said. "It is in our own self-interest, as well as the nation's, to seek support for the industry at a time of great peril to this important manufacturing sector of our economy."

David Whiston, an analyst at Morningstar, said the stock's value was now completely determined by government action, and that the company's weakened fundamentals would take years to repair.

"The biggest problem is that they've got to become profitable in North America," he says. "They need to sell more cars. There's a perception that Detroit makes low-quality cars, and that's not true anymore."

Bottom Line: Sell
Everything about this stock is wildly speculative, and anyone owning it should be poised to take profits when they can. Congress won't vote on the loan package until next week, and Ford and GM shares -- Chrysler isn't publicly traded -- remain vulnerable to the uncertain path of current events.

GE: Reorganization Plan Cues Rally

General Electric (GE) prospects brightened after the conglomerate unveiled plans to retain its dividend and reorganize its finance business.

In an update to investors, GE said it would pay out a $1.24 annual dividend next year and reaffirmed the low end of its fourth-quarter financial guidance. The company expects to earn 48 to 50 cents a share for the last three months of the year.

Although GE also said it expected as much as $1.4 billion in restructuring charges, it's getting another $5 billion in new capital to help weather difficult times.

"We have averaged 15% earnings growth over the last 20 years in these businesses," GE Vice Chairman and Chief Financial Officer Keith Sherin said of the GE Capital finance unit. "We are operating in an extremely difficult environment, but we are outperforming our peers and we have strong franchises to build upon for long-term growth."

William Blair & Co. analyst Jeffrey Germanotta, writing in a midquarter research note published Nov. 21, said expectations for 2009 simply need to be lower.

"With respect to the industrial business, it is now difficult for us to envision year-over-year profit growth between 2008 and 2009, despite active cost reduction measures," he wrote.

He said increasing unemployment will keep hitting the financial side of GE's consumer finance business, while sinking business profits are likely to drive higher defaults and losses in the commercial portfolio. Volatility in the financial markets will make it hard to sell off businesses.

He took issue with the dividend plan before it was released, thought he said management's approach was at least consistent.

"In our view, this action represents a financial philosophy that may not be sustainable during a multiyear period of protracted economic weakness and depressed industrial and financial services profits," he wrote. "As a result, we believe the dividend could be at risk."

Bottom Line: Buy
This is one of the bluest of all blue chips, and investors able to look past the headlines will see a payoff over time.

Palm: In Need of a Helping Hand

Investors sweated Palm (PALM)sales warning, sending shares of the smartphone maker down sharply on Tuesday.

The creator of the Centro and Treo handheld devices, which face fierce competition from Apple (AAPL) iPhone and Research in Motion (RIMM) Blackberry lines, as well as amped-up handsets from Nokia (NOK) and Samsung, said it expects fiscal second quarter revenues to be as much as 42% lower than Wall Street estimates.

Palm's most promising product, the Nova, a device based on the Linux operating system, is still months away from release, and the company is going into short-term survival mode, with plans to cut $20 million in expenses per quarter.

"We are seeing unprecedented dynamics in the global markets as economic uncertainty hampers demand for consumer products," said Ed Colligan, Palm's CEO. "In order to ensure Palm's long-term success during these uncertain times, we're taking several steps to significantly reduce our cost structure. These measures will help us navigate this difficult period while launching our next-generation products as planned."

Needham & Co. Charles Wolf wrote Monday that Palm is simply being outpaced by its rivals.

"For the past year Palm has been promising a new Palm operating system along with a new smartphone that breaks with the Treo's past," he wrote. "The company has yet to deliver on that promise. In the meantime, Apple, RIM and others have introduced new smartphones that have captured the fancy of consumers and grown the U.S. market at a pace far faster than that in international markets."

Matthew Sheering, an analyst at Thomas Weisel Partners, says the grim economic climate is putting gadget spending and upgrades on hold, and sees a precarious future for Palm, which "should come as little surprise given the company's lack of new products, weakening macro and intensifying competition."

"Still, we were surprised by the magnitude of the fall-off in demand and margins," he wrote. "While it is encouraging to see Palm react and cut expenses, we wonder whether it will be enough in the near-term given that we do not expect any major new products until mid-2009."

Bottom Line: Hold
Shareholders are prisoners of a product that doesn't yet exist and that will be released in an economic climate they can't predict. The stock has fallen so far in the last 12 months that it's a better option to keep taking the hits and hoping for success through the Nova, whenever it arrives.