While most of the U.S. economy is firing on all cylinders, the auto industry appears to be spinning its wheels. Ford Motor Company (ticker: F) announced this week that it plans to cut 10 percent of its global workforce, and investors are trying to figure out what to do with Ford’s stock.
U.S. auto sales have been on the decline in 2017 and prices for both used and new cars have fallen as well. Ford reported a 35 percent decline in net income in the first quarter of the year.
“We remain focused on the three strategic priorities that will create value and drive profitable growth, which include fortifying the profit pillars in our core business, transforming traditionally underperforming areas of our core business and investing aggressively, but prudently, in emerging opportunities,” the company said in a statement. “Reducing costs and becoming as lean and efficient as possible also remain part of that work.”
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One of the company’s aggressive investments includes a $1 billion commitment to artificial intelligence company Argo AI, which is developing autonomous vehicle technology. Ford recently said it expects to deliver a fully autonomous vehicle by 2021.
Wall Street has been mostly quiet on Ford so far in 2017. Back in February, Jefferies upgraded Ford stock from “underperform” to “hold” and raised its price target for the stock from $10 to $12. Analyst Philippee Houchois said Ford’s negative near-term outlook is already priced into the stock.
“Ford’s challenges are sufficiently priced in and risk is slowly moving to the upside,” Houchois wrote. Ford shares were trading above $12 at the time but have since fallen below $11.
In January, RBC Capital upgraded Ford stock from “sector perform” to “outperform” and raised its price target for the stock from $13 to $14. The firm said consensus market expectations “seem properly set,” adding that “Ford is in a better relative position for tax reform” than peers General Motors Co. ( GM) and Fiat Chrysler Automobiles ( FCAU) due to its North American focus.
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Despite all the headwinds to Ford’s business in the near-term, the company’s cost-cutting and investment initiatives could pay off for patient long-term investors. In the meantime, the stock’s 5.4 percent dividend yield and extremely low 6.5 forward price-earnings ratio may limit potential downside. According to Finviz, Ford and GM are both among the five cheapest stocks in the Standard & Poors 500 Index based on forward P/E.
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Leaner Ford Motor Company (F) May Be a Good Long-Term Investment originally appeared on usnews.com
