Ford Motor Company (NYSE: F) stock traded higher after the Trump administration announced that it is launching an investigation into auto imports on a national security basis. Analysts see Ford stock as extremely undervalued, and potential tariffs on imported vehicles could be just the catalyst the stock needs.
The investigation is based on Section 232 of the Trade Expansion Act of 1962, which allows the president to restrict U.S. imports if they are jeopardizing national security. President Donald Trump previously used his Section 232 authority to implement steel and aluminum tariffs. Higher auto tariffs could raise prices on imported vehicles, giving domestic producers like Ford an advantage.
[See: The 10 Most Valuable Auto Companies in the World.]
Ford stock has dropped 24 percent in the past three years amid a red-hot auto market and a roaring stock market. Ford has struggled to grow revenue and has fallen behind competitors in developing electric and autonomous vehicle technology. To make matters worse, analysts say the auto industry is at the tail end of a multi-year cyclical boom in sales, leaving all manufacturers vulnerable to a potential broad downturn.
Ford has recently implemented a restructuring plan that involves cutting its North American car lineup down to just two models and instead focusing on higher-profit and higher-margin truck sales. In addition, Ford has said it is investing $11 billion in developing 40 different EV models between now and 2022.
Morgan Stanley analyst Adam Jonas says Ford’s cash and gross liquidity alone make up 70 percent of the stock’s current market cap. In addition, he says the F-150 is worth 1.5 times the current market value of the entire company. Jonas says Ford seems to be following the blueprint of competitors General Motors Co. ( GM) and Fiat Chrysler Automobiles ( FCAU) in trimming its fat.
“We believe that if Ford learns lessons from GM and FCAU on what to exit and what to carve out, it can unlock [sum-of-the-parts] potential up to $25,” Jonas says.
Unfortunately, Jonas says Ford stock will likely need a kick-start to overcome the negative momentum in the auto market these days.
“We see the stock range-bound until a major inflection in demonstrated restructuring actions or potential management changes,” Jonas says.
[See: 9 Ways to Invest in Red-Hot Tech Stocks.]
If Thursday’s trading action is any indication, aggressive auto import tariffs may be just the catalyst Ford stock needs to start unlocking value for long-term investors.
Morgan Stanley has an “overweight” rating and $16 price target for F stock.
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Import Probe Could Be Catalyst For Ford Motor Company (F) Stock originally appeared on usnews.com
