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Is Ford Motor Company Stock At the Perfect Buy Level?

Bret Kenwell

It hasn’t been a good year so far for Ford Motor Company (NYSE:F). Just when it looked like the worst was in the rearview mirror, with Ford stock snapping out of a nasty multi-year downtrend, shares were hammered back down and threatened to break below $10.

The early February correction in the S&P 500 certainly didn’t help matters. But the correction in the F stock price began before that. In mid-January, shares sold off after the company’s presentation at the Detroit Auto Show. Earnings in the following week didn’t help matters.

After sitting near $13 at the start of the year, investors now wonder if Ford stock is a bargain near $10.50.

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Let’s see.

Valuing Ford Stock

Ford stock may trade at just 5.7 times last year’s earnings and yield 5.6%. However, those might be the only positive catalysts. When we take a look at current forecasts, the valuation looks less promising.

Analysts expect earnings-per-share of $1.57 this year, down from the $1.72 Ford had in 2017. That’s about in-line with the $1.45-to-$1.70 range management provided last quarter. Even worse, 2019 estimates call for earnings of just $1.52. In others words, a down year followed by another down year.

Management is also calling for flat revenue growth in 2018. Analysts, with forecasts calling for 90 basis points in growth, are essentially looking for the same thing. Yet again though, 2019 should be uninspiring, with current estimates calling for an 80-basis-point decline in sales.

So, maybe 7 times forward earnings is the right price for a stock like this. I don’t really know how to value Ford because its business remains so lackluster. That’s not to say it isn’t profitable — it’s very profitable in fact — but there is no growth for the next few years. Perhaps the company should buyback massive amounts of stock instead of pouring that money into “smart” concepts.

The Future of Auto

What do I mean by “smart” concepts? While companies like Nvidia Corporation (NASDAQ:NVDA) work on Level 5 autonomous driving chips and automakers like Tesla Inc (NASDAQ:TSLA) and General Motors Company (NYSE:GM) work on leveraging driverless vehicle capabilities, Ford management is centered on smart cities.

Management continually talks about these “smart environments” and “smart vehicles” helping to alleviate city congestion. They talk about improving logistics, as the current operating system is too inefficient “as neither the vehicles nor the infrastructure is really smart enough.”

To some extent, I agree with Ford. I’ve had conversation with leading experts in this field (Nvidia’s Danny Shapiro for one). Smart cities would be amazing and would help exponentially in leveraging autonomous vehicle capabilities. Unfortunately though, we’re not there. It will take a long time for this vision to play out.

While it’s hard to fault Ford for thinking about the future, it feels like a future too far away. Especially when companies like Mercedes are rolling out amazing new A.I. features. Or when analysts are talking about GM going from selling a $38,000 car to leveraging self-driving taxi features allowing the vehicle to generate hundreds of thousands of dollars for the automaker.

In that sense, who cares about what Ford is doing when we can buy these others names?

Heck, we know every automaker will be hammered when a recession eventually hits. Why not then hang out in a stock like Ferrari N.V. (NYSE:RACE) until it’s time to sell? It has momentum and with the upper class buying cars, we know Ferrari vehicles are in demand.

I see a lot of viable options here and none of them are Ford.

Trading F Stock Price

Below is a weekly five-year chart of the F stock price. One can easily see the multi-year downtrend that has been plaguing Ford stock since mid-2014. In October 2017, it was able to break free, but only for a few months.

Now we’re looking at a not-so-great setup. On the one hand, Ford stock continues to find support in the $10 to $10.50 area. This has held up for years now. However, it’s back below trend-line resistance and the way it’s setup, it looks like that downtrend could squeeze it below support.

Is Ford Motor Company Stock At the Perfect Buy Level?

So is Ford at the perfect buy level? Not yet.

Investors can justify owning Ford so long as it stays above support (blue rectangle). But the perfect buy setup occurs if Ford stock can clear and close above downtrend resistance. If it falls below support, investors should consider cutting their losses.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held a position in NVDA. 

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