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The Future of Ford Motor Company (F) Stock Is Overhyped

Both Ford Motor Company (NYSE:F) shareholders and President-elect Trump are getting a bonus this month. However, the bonus might be short lived for Ford stock and the president to be.

Ford F stock

The Ford dividend shareholder bonus is a nickel, being paid on top of a 15-cent-per-share dividend due on March 1 to shareholders of record Jan. 20. That means you still have a week to buy shares and capture that extra money.

In announcing the supplementary dividend, Ford CEO Mark Fields estimated that the company had $10.2 billion in pre-tax income for 2016, short of the previous year’s $10.8 billion in 2015, but still substantial.

The Trump dividend was positive PR, following a Presidential “Tweetstorm”, after which Ford cancelled a plant in Mexico due to make the Ford Focus and announced new production in Michigan and Ohio, which Trump promptly took credit for.

The truth — as always — is more complicated, and could cause problems, as other parts of the President-elect’s program move forward.

F Stock: American Gas Guzzlers

Ford’s strategy has not really changed, Trump or no-Trump.

The plan has always been to make more expensive, low-mileage cars in the U.S. while exporting production of cheaper, high-mileage cars to places where labor costs are lower.

It just so happens that, for now at least, American buyers love their gas-guzzlers.

F announced at this week’s Detroit Auto Show it will resume production of the Ford Ranger, a mid-sized pick-up, for the 2019 model year and add the Bronco as a mid-sized SUV the next model year. 

The Bronco had been cancelled in 1996, replaced by the Expedition, after O.J. Simpson drove one to infamy down a California freeway in 1994.

This may have been news to Trump, but it was not news to Ford’s unions. It is part of a general industry trend toward lower-mileage trucks and sport utility vehicles, which buyers have preferred for some years despite price tags that often exceed $50,000.

The risk is that the appetite for these gas-guzzlers could cool if, as expected, oil prices continue to rise and peace comes to the oil patch under incoming Secretary of State Rex Tillerson. The hope is that Ford stock can adjust quickly in that case, although it would mean fewer U.S.-made, more imported Ford vehicles and more nasty Tweets from the White House.

The Real Strategy for Ford Stock Is Electric

Beyond the corporate responses to Presidential “strategery,” F stock has a longer-term plan to move into self-driving hybrid and electric cars.

Executive chairman William Ford, a great-grandson of founder Henry Ford, says the company has invested $4.5 billion to build up to 13 “electrified” vehicles by the end of this decade.

Ford is also pitching self-driving cars for early in the 2020s, calling that “an arms race.”

The promise, F said, is margins of 20% on cars offered as a service, rather than sold through dealers. Ford stock currently makes less than a 10% gross profit on its cars and it brings less than 3% of revenue to the net income line.

However, F also acknowledged there are risks, that it will make choices along the way and some of those choices will be wrong.

Ford Stock: Worth Double Digits?

While Tesla Motors Inc (NASDAQ:TSLA) — the company Ford is chasing in this new race — already has 70% of Ford’s market cap despite producing less than 1% of the cars Ford produces, it remains unlikely that F stock will have anything more than a single-digit price-to-earnings multiple any time soon.

While investors are buying the electric and self-driving story that Ford is selling, few believe it will result in the 20% margins Bill Ford is predicting. Until Ford stock can find a way around Tesla and car-ride companies like Uber, both of which are aiming at its new target market, it is likely your gains in F stock will remain closer to that nickel, given the risks to the company’s existing business from change.

Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies covered in this story.

Article printed from InvestorPlace Media,

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