For the past five years, Ford Motor Company (NYSE:F) has been stuck in neutral, with the price movement of Ford stock coming in right around zero. That compares horribly to a 55% price gain for rival General Motors Company (NYSE:GM) during the same period, and a nearly 80% run for the S&P 500.
Today didn’t help, as Ford earnings that came in merely in line with estimates had Wall Street selling off F stock by about 3%.
Ford is a well-run company with a tremendous brand. But the competitive environment has been intense, and worries about slowing growth in the global economy abound.
Furthermore, Ford stock has been weighed down with political risk. The company has been the target of Donald Trump’s powerful Twitter Inc (NYSE:TWTR) account. Although, Ford is trying to manage this, including ditching a plant planned for Mexico.
Is a contrarian play brewing after this latest earnings dip? Is Ford stock finally at a level where a rebound seems likely? Well, let’s consider three factors:
Ford’s Strong Core Business
Ford simply builds vehicles that people want. But no doubt, the key has been the company’s leadership in the truck market. Consider that last year, Ford sold more than 820,000 F-Series vehicles — or about one every 39 seconds!
F is continuing to build on this franchise, too, not letting success get in the way of innovation. The new F-150 has two new engines (one’s diesel), a 10-speed transmission and Wi-Fi hotspot.
Ford also has gotten traction with its utility vehicles, and the company has ambitious plans to expand by five new models by 2020. This will include an aluminum Expedition and Navigator, as well as a new Bronco.
While Ford’s earnings were merely in line with estimates, adjusted net income was up year-over-year, as were revenues of $38.7 billion, which beat Wall Street’s expectations.
Focus on Next-Gen Technologies
The auto industry is in the midst of a technological revolution, as seen with the emergence of self-driving cars. Of course, several mega-tech operators, like Alphabet Inc (NASDAQ:GOOGL) and Apple Inc. (NASDAQ:AAPL), have been making moves into the industry.
Ford doesn’t want to be left behind, and has responded in several ways, including investing heavily in developing electric vehicles. The goal is to launch 13 by 2020, including an F-150 and Mustang hybrid. Ford is also laying out its own charging network.
Ford also has been working on making their cars more connected. An interesting example of this is a deal with Amazon.com, Inc. (NASDAQ:AMZN) to leverage Alexa, which will allow for voice-activated shopping, searching and access to smart home features.
And of course, Ford expects to have its own autonomous vehicle on the market by 2021. This won’t be about sourcing off-the-shelf technology, either. At the recent CES conference, Ford’s engineering team said it has been creating proprietary software and hardware systems. That’s important to investors because it not only gives Ford more control over quality, but it should keep margins higher, too.
Lastly, Ford is working on Chariot, a ride-sharing service similar to Uber. It’s currently available in two cities, and will expand to eight by the end of the year.
Ford Stock’s Valuation and Financials
Ford continues to crank out substantial cash flows, which came to $10.4 billion for the full year.
This certainly is important to help finance the investments in the company’s technologies, but it also helps fund a juicy dividend that’s near 5%. It’s also note that Ford stock has raised its dividend by 20% since 2014, and paid out two special dividends to boot.
Wrap that all up in a stock that trades at just 6 times earnings, and you have to imagine Wall Street has heavily discounted all of Ford’s perceived flaws.
This is a 4.8% yielder for a bargain price. Don’t sit on your hands.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is a registered investment adviser representative (you can visit his site to learn more about his financial planning services). He is also the author of various books on investing like All About Commodities, All About Short Selling and High-Profit IPO Strategies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.