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Ford Stock Still a No Go, Despite Sales Bump

Ford Motor Company (NYSE:F) August were better than expected but don’t instill long term confidence in Ford stock. The company’s stock has been in a steady, if stable, decline the past few years. In fact, just a few weeks ago, the automaker hit its lowest levels in almost five years. Dividends have offset some of those losses, but F stock still has been a losing bet.

Still, I don’t think Ford stock is worth chasing. But lately there’s been some good news for the company and the stock has responded, bouncing over 7% off that multi-year low. Notably, August sales in the U.S. look solid, with the year-over-year decline narrower than expected. And in that report are some signs that the headwinds facing Ford stock might moderate and allow the stock to stabilize.

Ford Sales Better Than Expected…

Ford stock
Ford stock

Source: Wikipedia

Ford’s unit sales for August 2017 aren’t hugely impressive, with a 2.1% decline year-over-year. But industry analyst Edmunds projected a 2.4% decline, so the numbers were better than expected, and Ford stock actually gained 2%+ on the news.

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Looking closer, there’s reason for optimism. The best piece of news was in F-150 sales, which rose 15% year-over-year on a unit basis, and comprised over one-third of total units sold. In addition, pricing jumped about 8%.

The F-150 sales are important for a number of reasons. First, they show the Ford’s continued dominance in pickups, despite aggressive competition from General Motors Company (NYSE:GM) nameplate Chevrolet and from Fiat Chrysler Automobiles NV (NYSE:FCAU) Dodge brand. Second, margins in pickups are better. They likely are improving given the price increases, which comes from customers buying higher trim level trucks. And, third, pickups seem best protected against self-driving car concerns and perhaps show a way in which Ford could manage to keep profits reasonably stable even if small car sales drop off.

The other piece of good news was in fleet sales. Struggles at Hertz Global Holdings, Inc (NYSE:HTZ) and Avis Budget Group, Inc. (NASDAQ:CAR) have provided an under-covered headwind to Ford stock, as fleet sales have come down. Rental fleet sales still fell 2.3% in August, but strength in commercial and government sales led to a total decline of just 0.2 percent.

It was a solid report, and it makes sense that Ford stock rose on the news.

…But Not Good Enough

In the report, an investor can see the outline of the bull case for Ford stock, particularly at just 7x earnings. Growth in truck sales should keep profits relatively stable. Some stabilization in fleet would help as well. Maybe profits still decline, but at a modest rate, and modest enough that Ford can adapt. With the dividend on Ford stock yielding 5.4%, I can see why investors might argue that last month’s lows were truly a bottom for Ford stock.

As cheap as Ford stock looks, the bull case just isn’t strong enough. “Peak auto” concerns are very real. Ford still looks behind in self-driving cars. I agree with fellow InvestorPlace columnist James Brumley, who’s argued that new CEO Jim Hackett hasn’t brought enough to the table, at least not yet.

There are worse stocks to own than Ford stock, no doubt. But this still looks like a business whose sales and earnings are set to decline. Ford stock might be pricing in those declines – but that doesn’t make it a buy.

As of this writing, Vince Martin has no positions in any securities mentioned.

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