Headquartered in Dearborn, Michigan, Ford Motor Company (NYSE: F) started rolling cars out for the mass market in 1903.
Company founder Henry Ford was well known for treating his employees fairly, doubling their pay and famously stating that he wanted his workers to have a life, and not just make a living by building his cars.
Company shareholders have largely been treated well, too, over the years, with robust stock performance and an ample dividend (that’s still the case, as Ford’s forward dividend stands at 7 percent).
[See: A Look Into the Future for 7 Top Auto Stocks.]
Yet while few global auto companies are performing well in 2018, Ford is especially struggling, with its 2018 share price down 31 percent since the beginning of the year.
With 2019 beckoning, and as the auto industry remains a puzzle for investors, can Ford turn things around? Auto industry experts say that the outlook is on the downside, as Ford struggles to adapt to a changing automotive landscape.
Ford Stock at a Glance
Ford company’s stock performance of late is underwhelming.
Ford stock is trading near $8.50 per share, down from $13 at the start of 2018. Analysts don’t seem bullish on the stock, with a consensus one-year price estimate at $9.89 per share.
Among its competitors, Ford stock looks even worse, badly trailing General Motors Co. ( GM, down 16.9 percent year-to-date), Fiat Chrysler ( FCAU, down 16.6 percent) and Toyota Motor Co. ( TM, down 6.5 percent).
Ford, like most automakers, is stuck in low gear. Through October, U.S. auto sales are only up by 0.2 percent on a year-to-year basis. Only light trucks are performing well, up 8.3 percent through the first 10 months of 2018.
“The reality for auto brands in the U.S. right now is declining overall sales, so any good news is welcome for vehicle makers,” says Mike Dickerson, product innovation lead at Alter Agents, a Los Angeles-based market research firm that specializes in the auto industry. “While SUV and (crossover utility vehicle) sales have grown, sedan sales have declined precipitously, creating an overall drag on auto manufacturers.”
Going forward, Dickerson says, “the most successful brands will be those that can adapt their model lineup and production numbers to meet consumer demand as this shift away from traditional sedans plays out.”
Pros to Buying Ford Stock
Ford stock seems to be treading water right now, although there are some signs of demand.
“Among our users, Ford is the 22nd-most popular stock,” says Bernard George, chief executive officer at Nvstr, a stock market data analysis firm. “It’s about 61 percent more popular than GM, but 60 percent less popular than Tesla ( TSLA). There is little to no interest in F from the short side.”
[See: 7 Great Ways to Invest in Electric Vehicles.]
The most commonly cited reasons for owning Ford are its low price-earnings ratio of 5.5, coupled with the potential upside from its self-driving initiatives, George says. “Press reports suggest Ford’s self-driving cars are capable of navigating very complex urban environments, though there is some skepticism about the controlled nature of Ford’s demos of this technology,” he says. “Users also note Ford’s dividend yield is attractive.”
Cons to Buying Ford Stock
Ford seems to be struggling in a downscale auto sales environment.
“Ford’s earnings declined in each of the past two years and are expected to slip again in 2018 and 2019,” says Marc Lichtenfeld, chief income strategist at the Oxford Club, an investment group in Baltimore. “Free cash flow also fell in 2017 and is expected to drop again this year. In 2018, free cash flow won’t cover the dividend. Until I see evidence of improvement in the financials, or have reason to expect one is coming, I’m going to stay on the sidelines.”
The most commonly cited risks for buying Ford stock include a belief that Ford’s EV battery technology lags competitors like Tesla, and wariness of new CEO Jim Hackett’s announced strategy of slashing virtually all car models except the Mustang, George says.
“Users also express a lack of confidence in Hackett’s background, since the bulk of his professional experience is in making furniture,” George says. “Another risk that’s cited is the cyclical nature of auto sales and the possibility that they’re already near peak levels.”
James Kling, associate professor of supply chain management at Niagara University, is a long-time Ford stockholder who’s been pruning shares. He says debt refinancing is becoming more expensive and the current price of Ford stock would seem to anticipate that its dividend is not sustainable. “In fact, it seems like a 50 percent reduction in its dividend within the next year is already priced into the mix,” he says.
The Bottom Line on Ford Stock
With the F series pick-up truck Ford as a great cash cow and its big dividend, Ford should be an attractive investment. But the reality does not match that assessment.
“Myriad issues hang over this company, from declining housing starts in the U.S., which possibly impacts truck sales, to its ambitious China growth plans moving into reverse and creating red ink in the world’s largest auto market,” Kling says. “Long term, the threat of ridesharing services like Uber will cause a structural decline in the demand for personal vehicles and Ford is not seen as a leader in either electric vehicles or autonomous technology.”
Others say that Ford shows little sense of urgency in a changing automotive market, and needs a strong dose of direction.
“Ford seems to be rudderless,” says Leon LaBrecque, managing partner and CEO of LJPR Financial Advisors. “Ford has indicated that it will remove their car lines and cut costs, but have yet to fully define their cost-cutting. Ford sales are down, and for the first time since 2015, Fiat Chrysler has outsold Ford.”
[See: 9 Dividend Stocks to Sell Despite High Yield.]
LaBrecque is not selling Ford, however, because of the attractive dividend yield and P/E ratio.
“For our portfolios that have Ford, we are a hold,” he says. “It’s quite rare to see an established company with a yield higher than the P/E ratio.”
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Pros and Cons to Buying Ford Motor Company (F) Stock originally appeared on usnews.com
