Is Ford Stock Too Cheap to Ignore?
If Ford (NYSE:F) stock was a car, it would be…an Edsel. Yes, it has been kind of awful. So far this year, Ford stock has fallen about 17%. And for the past five years, its average return was -5.86%. By comparison, GM (NYSE:GM) stock has logged average gains of 2.68% during this period and Tesla’s (NASDAQ:TSLA) shares have risen an average of 10.98%.
When it comes to F stock, there are certainly various issues to worry about. Rising interest rates will make it tougher for consumers to buy new automobiles. There is also uncertainty regarding tariffs, which are disrupting global supply chains. Finally, the Chinese economy continues to be weak.
There’s something else: Ford must deal with the technological disruptions in the auto industry. More people are changing their driving habits as they use peer-to-peer services like Uber and Lyft. In other words, fewer people may be interested in buying cars.
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So all of this seems fairly dire, right? Definitely. But when it comes to investing, taking a contrarian view can yield high returns – and that could be the case with Ford stock.
Keep in mind that the company’s CEO, James Hackett, has been making bold moves. For instance, he plans to reduce the company’s costs by a hefty $25.5 billion over the next four years. To accomplish that goal, Ford will have to change its approach to manufacturing and only use five different types of vehicle architecture. Ford will also focus on using common components for its vehicles. By streamlining its systems, the company should be leaner as well as more responsive to changes.
Moreover, Hackett will eliminate Ford’s sedans in the North America market, except for the Mustang and the Focus Active crossover. That’s a risky move, especially if gas prices continue to rise. But by focusing only on those models, Ford can find ways to be more fuel-efficient and benefit from solely targeting higher-growth opportunities.
And what about autonomous vehicles? Ford plans to invest $1 billion in that category. Its goal is to develop a road-ready autonomous vehicle by 2021.
Going forward, there could be interesting partnership opportunities for Ford, as large tech companies like Apple (NASDAQ:AAPL) eye theautonomous vehicle market. Note that GM’s own autonomous vehicle division snagged a $2.25 billion investment from Softbank Group, whose investment valued the unit at $11.5 billion.
Bottom Line on Ford Stock
The price of F stock has certainly reached rock-bottom levels. Consider that the stock’s price-earnings ratio is a mere six.
Granted, Ford is in a cyclical business, and auto sales have probably peaked. Yet there are few signs of an economic downturn. If anything, the U.S. economy is showing signs of acceleration. Wages have been rising, and consumer confidence is high.
What’s more, the dividend on F stock is outstanding. Note that the forward dividend yield of Ford stock is currently about 6.35%. So this yield should help provide a cushion in the event that Ford stock drops further. Ford’s operating cash flows – close to $5 billion in the latest quarter — will enable it to avoid cutting its dividend.
It’s true that a cheap stock can remain cheap for a long time. But with Ford stock, I think there are some catalysts that can help boost the price of F stock. I’m referring especially to its investments in autonomous vehicles. The company’s restructuring should also be beneficial for Ford stock. So all in all, for investors looking for a value play, F stock does look interesting right now.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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