Ford Motor Company (F) Stock May Be a Sweet Ride in 2017

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In a market where bargains are hard to find, Ford Motor Company (NYSE:F) is a compelling value.

F Stock: Ford Motor Company (F) Stock May Get in Gear in 2017

F stock is stuck in neutral, gaining less than 1% over the past year as investors fretted about its disappointing fourth-quarter results and lackluster 2017 outlook. Not surprisingly, the Dearborn, Mich.-based company has unperformed General Motors Company (NYSE:GM) and Fiat Chrysler Automobiles NV (NYSE:FCAU), which gained 24 percent and 63 percent respectively during the same time.

F Stock in the Coming Year

The performance of F stock doesn’t appear to be justified by the company’s fundamentals, including its expected 2018 rebound.

For one thing, auto industry experts at JD Power & Associates, LMC and elsewhere are bullish about U.S. auto sales, though they admittedly got off to a slow start, posting their first monthly decline in January since 2010. Total vehicle sales in 2017 are expected to hit 17.6 million units, little changed from 2016, though well above the 14 million level they were in 2012.

I don’t know if that’s a sign of what the media has dubbed “peak auto,” but any decline is the auto market will be slow and gradual, and would probably hurt all market participants equally.

F stock’s North America business, its largest, is doing well, generating a full-year pre-tax profit of $9 billion in 2016 while retail transaction prices were $1,400 per vehicle higher than a year earlier. The company’s European division, which has struggled in recent years, saw profits rise in 2016, earning a record $1.2 billion.

While both markets are expected to post declines in 2017, they should remain profitable — which given Ford’s plans to ratchet up internal investments, including $1 billion in artificial intelligence, is not too shabby.

F stock also has plenty of tricks up its sleeve like its first new full-sized Ford Expedition and Lincoln Navigator SUVs in more than a decade. F had all but surrendered this market to GM in recent years while sales of sedans such as the Ford Fiesta and the sporty Mustang stalled.

The Donald Trump administration likely will roll back the EPA’s controversial 2020 mileage targets, which will help Ford and the other automakers sell more vehicles where fuel economy is an afterthought. Ford’s best-selling F-150 pickup, which is being redesigned in 2018, as are the five new SUVs slated for 2020, including the return of the Ford Bronco.

CEO Mark Fields is following in the footsteps of his well-regarded predecessor Alan Mulally. F stock is poised to save $3 billion annually through 2018 through a cost-cutting program including zero-based budgeting among other things. Fields is pushing the 113-year-old company into the 21st Century through his partnerships with Silicon Valley to develop self-driving cars.

Finally, there is the F stock price. While GM trades at a cheaper multiple than F (6 to 11), its dividend yield is slightly worse (4.8 percent versus 4.1 percent). FCAU doesn’t pay a dividend and, given its recent run-up, is hardly a bargain.

Both F and GM shares are trading at about a 5 percent discount to their average 52-week price target. F shares, though, have fallen further, making them a more compelling value.

As of this writing, Jonathan Berr didn’t own any of the aforementioned stocks.

Jonathan Berr is an award-winning freelance journalist who has focused on business news since 1997. He’s luckier with his investments than his beloved yet underachieving Philadelphia sports teams.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/ford-motor-company-f-stock-gear/.

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