Is Ford Motor Company (F) Stock Recession-Proof?

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If you think, as I do, that there’s an economic storm brewing ahead, here is an interesting place for you to consider parking some money.

Is Ford Motor Company (F) Stock Recession-Proof?

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While most Americans are celebrating the lowest unemployment in 10 years, Ford Motor Company (NYSE:F) is preparing to lay off 10% of its workforce, as many as 8,500 Americans. It will cut car production, even exit markets like India where it’s under-performing, all to pay down debt. 

While everyone else is go-go-go, Ford is hunkering down.

In the present market environment, such a strategy gets no love.  Shares closed Friday at $10.93, down 9.89% for 2017, down by 28.4% since this time in 2015. The price to earnings ratio is at 11.7, and Tesla Inc. (NASDAQ:TSLA) is worth nearly 20% more on market cap.

What this means to me is that, if you see a storm ahead, buy some Ford.

Why Buy Ford Stock?

The best reason to buy Ford stock now is that CEO Mark Fields has secured the 15-cents-per-share dividend, which doesn’t sound like much until you realize that it’s a yield of 5.49% at the current stock price.

Ford usually covers that dividend many times with earnings. Its preliminary December numbers were reported as strong.  Then, it dumped $2 billion of new pension obligations on the pile, and added cancellation of a factory in Mexico. The expected profit turned into a loss.

Take that loss out, understand it’s a one-off, and Ford’s P/E is in the mid-single digits. Even with that loss, a product of conservative business practice, it covered the dividend nearly twice. The stock is literally as cheap as chips.

Now look at the balance sheet. Long-term debt is $96.7 billion, which is worrying. But, there’s $40 billion in cash and short-term investment there, as of March, and management is focused on improving those numbers.

Next, look at things strategically. Except for Tesla, every tech company focusing on autonomous cars has recognized, over the last year, that it would be foolish for them to build cars. The industry has realized that making cars is capital intensive, that it’s a job for experts. Ford is an expert.

So, guess which company leads in the race to build autonomous cars? According to Navigant Research, it’s Ford.

How about electric cars? What about the Tesla? Ford will have an electric crossover within three years, with a range of 300 miles. That’s the same time frame, and on a bigger scale, than Tesla.

Why Hate Ford?

Right now, most analysts don’t know what to tell you about Ford. A majority have F stock in the dreaded “hold” category, which means nothing. This is despite the mean number on earnings per share in 2017 sitting at $1.55, and a forward P/E of about 7 at current prices.

Most InvestorPlace writers feel the same way.

The auto industry is too ugly, says Josh Enomoto. It is still a bumpy ride, says Richard Saintvilus. It is tough to like here, says James Brumley. Put the brakes on it, says Joseph Hargett.

Fundamentally, I don’t disagree. I am not saying that Ford stock is about to go to $20, that Ford is going to stop being Ford, or that F stock is where you’ll find a quick profit.

I’m recommending Ford as a purely defensive play if you believe, as I do, that the current market is overpriced, that optimism is irrationally exuberant and that we’re headed for a fall.

Even if I’m wrong, you get a yield of nearly 6% on your money, while you wait to see how the Tesla story plays out.

Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in F.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/is-ford-motor-company-f-stock-recession-proof/.

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