Ford Motor Company (NYSE:F)? No way. When it comes to holding the best stocks the world has to offer, in a long-term diversified portfolio that keeps a close eye to investing to reduce risk, Ford stock does not make the cut.
Look at Ford’s historical chart for Ford stock. If you bought Ford stock in the late 1990s and held it, you would be pretty upset as far as capital gains go. The stock has gone nowhere. Sure, you picked up dividends along the way, but you also paid taxes on them.
And you’re surely doing worse than if you’d just sat on the S&P 500 and waited.
But that’s yesterday. What about today and the future?
I don’t care about the 5%-plus yield on F stock, which is touted by one of its greatest strengths. All we need is for Ford to fall by 50 cents (not unrealistic even within a single bad day) and that yield becomes meaningless. It’s certainly pointless if you believe the path of least resistance for Ford stock is down, not level.
Auto Data Is Dismal
Normally, when there is a product I consider critical to the existence of the American consumer, I would seriously consider owning that stock. The problem is that product also needs to be relatively unique.
Cars are not unique. There are plenty of cars and competition. Ford has a 15.4% market share, yet the sales data is pretty bleak, down 5% year-over-year, on top of previous monthly declines.
Get this: Ford has sold almost 1.3 million cars in the first half of the year. It will probably come close to gross sales of $145 billion or so. However, the expense category in F stock financials is all over the place. Will F produce a net profit of $1.24 billion as it did in 2014, or more like $12 billion like in 2013? Maybe somewhere in between, like the $7.4 billion in netted in 2015?
How am I, as an investor, supposed to figure out what kind of P/E to assign to Ford if I can’t even peg its net income from one year to the next?
The sales numbers are horrible. Total domestic car sales fell 23% year-over-year! I’d say that’s horrible, except that General Motors Company (NYSE:GM) saw a 38% decline. So far this year, sales for Ford are down 20.2%. Almost every manufacturer is down double digits.
Nor can you count on those high-margin truck sales. Those fell 4.2% in April, were up 9.4% in May, but only up 2.2% in June.
Further, the entire auto market is a mess. Car sales are down 13.2% YoY so far this year. Minivans are down 12.7% YTD. Small vans are down 19.2%.
Debt
The consumer debt market is also reaching a critical mass. For Q1, the Fed reported some ugly numbers in regards to consumer debt — which is important because most car purchases are financed. The auto sale increases we have seen over the past eight years or so were the result of consumers taking on a ton of new debt. However, delinquencies are now hitting the market.
Translation: Some of the cars that have been purchased may end up being returned if default start to hit the market.
One Last Shot
Finally, Ford and all the other car manufacturers have got to be concerned about Uber Technologies and Lyft. Here in L.A., it is very common for me to see my friends arrive at a gathering via ride-share. Younger people are using ride-share so they don’t have to drink and drive. And in a city like L.A., in which car maintenance and gas prices are very high, rideshare has become a very viable alternative to owning a car.
Uber and Lyft keep entering into partnerships and are spreading wider by the day. Even automakers who join on have to know what the end game is in a more heavily ride-sharing world — fewer cars sold.
Bottom Line: I just see too many headwinds and way too much uncertainty to get into most auto companies. But Ford stock stands out as particularly weak.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
