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Why Ford Motor Company (F) Stock Is Still a Screaming Good Buy

With a quarterly dividend of 15 cents that yields 4.7% annually, investors have tons of incentive to be patient with Ford stock

   

Like its corporate slogan, “Built Ford Tough,” investors must have enormous strength to withstand frustration and possess nerves of steel of own shares of Ford Motor Company (NYSE:F). Ford stock, which has fallen some 5% over the past year, has been stuck in neutral for quite a while, trailing not only the 17% one-year rise in the S&P 500 index, but also the 18% one-year gain in rival General Motors Company (NYSE:GM).

Why Ford Motor Company (F) Stock Is Still a Screaming Good Buy
Source: Shutterstock

Investors want to know what can drive F stock, which closed Friday at $12.53, higher in the quarters and years ahead. Despite the 3% rise year-to-date, Ford stock is a screaming bargain, whether based on price-to-earnings or price-to-sales ratios.

Is F Stock in Trouble?

The reason for the underperformance in F stock? Aside from reduced prospects in U.S. auto sales, the auto industry, which is capital intensive, produces notoriously low profit margins. In the case of Ford, the Michigan-based automaker, which produced $151.8 billion in revenue for 2016, had to spend $147.6 billion for those sales, yielding just $4.5 billion in net income. In the last five years, Ford’s average profit margin has been 4.2%, according to YCharts. This compares to 6.69% for Toyota Motor Corp (ADR) (NYSE:TM) and 4.38% for GM.

Meanwhile, although Tesla Inc (NASDAQ:TSLA), which has a 5-year average profit margin of -57%, has yet to make money, TSLA stock has risen 608% in five years, while Ford stock has fallen 1.4% during that span. The difference between F stock and Tesla? The latter has stronger growth prospects. Depending on the extent the company can expand its profit margins, F stock should begin to drive higher. The company’s capabilities in the ride-sharing market is a key to that expansion.

Ford CEO Mark Fields has begun to focus on automotive technologies to drive growth into the 21st century. And these technical ventures, which include internet-enabled services such as shuttle vans that can be hailed using a smartphone app, put Ford in the realm of tech powers like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) subsidiary Google and Tesla.

These initiatives suggests F doesn’t want to be left behind. But as with its existing business, can Ford bankroll these projects in a way that drivers higher margins? To date, F has spent about $500 million in these initiatives, according to Reuters. By comparison, Toyota has spent more than $1 billion, while GM has spent $1.2 billion.

Bottom Line for Ford Stock

Fields is clearly treading cautiously with the company’s tech spending and has ventured too quickly and too far beyond its core business. While I think this is the right approach, he’ll soon need to show more commitment to these ideas to inspire more confidence in F stock. But with a quarterly dividend of 15 cents that yields 4.7% annually, investors have tons of incentive to be patient.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2017/03/better-margins-technology-will-drive-ford-motor-company-f-stock/.

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