Since early November Ford Motor Company (NYSE:F) is up about 12%. That’s not much, but it has been enough to get the price-to-earnings ratio up to nearly 6.4, and drop Ford stock’s yield down to 4.7%.
Ford is like a bad football team that won two games at the end of the year. Fans ask, is this a trend?
In this case, the fans are investors who have seen the stock go almost nowhere since re-launching its dividend in 2012, even though that dividend has since tripled to 15 cents per share, with a special 25-cent additional payouts early in 2016.
Analysts are not impressed either. Our James Hargett is downright bearish. Most analysts call Ford stock, at best, a hold, which is what you say when you don’t know what to say.
Is there anything good one can say going into 2017?
The Good News for F Stock
There is good news at Ford.
The Super Duty F-150 is flying out of showrooms, with showroom sales up by one-third over a year ago. The Super Duty has a lot of self-driving features, and sales are especially strong in Texas.
Ford has also gotten back into the high-performance sports car market with a new GT that has begun rolling off a Canadian assembly line. The $400,000 cars are mostly a market statement, not a financial one. Production is limited to 500 per year. But it will be nice seeing Ford on car shows again.
Ford is also making moves that hint at long-term stability in U.S. production, launching a new V-8 engine and rebuilding a neighborhood in its home city of Dearborn.
The Christmas quarter should be a good one, with earnings of 36 cents per share expected for F stock, up from 26 cents last quarter. But that’s down from 66 cents per share last December, and most have a price target that leaves it just about where it is now.
The Bad News
Since Ford didn’t take the bailout that General Motors Company (NYSE:GM) did in 2009, its balance sheet still has almost $90 billion in long-term debt, against $235 billion in assets. It can still tap the debt market, for long-term planning in self-driving cars and electrics, but another recession could give that balance sheet a severe jolt.
And there are always little jolts. The Kansas City plant that makes the F-150 truck will close for a week next month. It may be why shorts are lining up for the whole sector.
Throughout this decade, Ford’s strategy has been to build its most profitable products in the U.S., and export production of marginal products. This was politically acceptable under President Barack Obama, but President Donald Trump is not happy with Ford importing a new SUV from India next year and is already threatening tariffs.
A car company must plan for the long term. It can’t be concerned with politics. But long-term moves to improve fuel economy and the environmental footprint of its cars are coming to fruition just as an administration takes office whose EPA pick considers global warming a hoax.
Should You Buy Ford Stock?
On balance, Ford stock remains one of the most underpriced stocks in the world, and it’s hard to see the new Administration making a success in the economy unless that changes. In the short run, I think that will change, and that Ford will catch a bid through at least the first half of 2017.
Beyond that, however, my crystal ball gets cloudy. The recovery is now eight years old, the policies that drove it are due to be reversed, dividend stocks will be under pressure as interest rates rise, and the pace of change at a car company must be glacial.
When we look at Ford stock a year from now, I’m afraid we may be looking at another losing season.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
