It’s not on life support yet. But if Ford Motor Company (NYSE:F) doesn’t do something to turn things around in the markets, it could get ugly. I’m not talking about the usual tit-for-tat dynamics that most long-term shareholders ignore. I’m referring to a whopping, makes-you-want-to-cry type of volatility should you hold on to Ford stock longer than necessary.
It’s tough to go negative on an iconic American institution like Ford. At the same time, one has to wonder what’s going on with F stock.
Since the beginning of 2015, the earnings performance of Ford stock has literally been a hit or miss affair. Wall Street analysts may claim that they have a methodology to their madness. Honestly, you can just flip a coin and get the same results.
Of course, the automotive industry is a competitive one. The labor market is improving noticeably, which is a major plus for F stock and its rivals. However, recent housing market data suggests that the recovery is at the very least imbalanced. American families are finding it difficult to get ahead, and that will stymie car sales.
So Ford stock deserves some slack. The problem is that the automotive giant’s rivals are performing noticeably better. Year-to-date, F stock is down nearly 4%. This compares unfavorably to General Motors Company (NYSE:GM), which is roughly at parity. Then there’s the shining bright light of Fiat Chrysler Automobiles NV (NYSE:FCAU), which has gained over 21%.
Given these contrasts, does any reason exist to justify Ford stock?
Big Dividends Not Enough for Ford Stock
For those that have a (very) long-term perspective, passive income provides a powerful incentive. As InvestorPlace contributor Richard Saintvilus notes, the dividend yield of F stock is steadily approaching 5%. That’s slightly better than GM, and significantly higher than Japanese automakers Toyota Motor Corp (ADR) (NYSE:TM) and Honda Motor Co Ltd (ADR) (NYSE:HMC).
This passive strategy assumes that Ford stock will stay relatively stable. Otherwise, you could end up losing far more in capital valuation than the passive income could ever hope to compensate. Unfortunately, stability is a luxury that F has rarely seen over the years.
On the opposite side of the spectrum, InvestorPlace’s Chris Fraley wryly stated that F stock “hasn’t budged in half a decade.” And in the week-long period since he wrote his article, the situation for Ford stock has gotten worse. Now, shares are trading below the $12-mark, and it wouldn’t surprise me if we see further pain. In fact, I’m expecting it given the tough road that all automakers must traverse.
That leads me to one conclusion. Their vehicles may be “Built Ford Tough,” but Ford stock doesn’t share the same robustness. If 2017 were to end right now, the average four-year return of F stock would be a dismal loss of 3.5%. Even if it was guaranteed that Ford would provide a 5% payout, the losses you would incur would make this a poor investment based on opportunity cost.
More Pain to Come for F stock
I had doubts about Ford stock earlier. But with its sharp series of losses over the last six trading days, I’m very concerned. The most recent trades have done little other than to move sideways. Under a technical interpretation, F stock could be consolidating before its continuation of the dominant trend. In this case, the dominant trend is down.
The 1990s returned 24%, while the 2000s dipped to 16%. As of the end of March 2017, we’re looking at around 6% to 8%. Should the trend continue, F stock won’t even return its dividend yield.
That’s a big problem. Sure, investors love them some passive income. But they wouldn’t agree to going underwater in the capital markets. Therefore, I highly doubt that people en masse would buy into the Ford stock discount. Why risk so much with the automotive industry when truly boring companies like AT&T Inc. (NYSE:T) can deliver similar results without the drama?
The bottom line is that I would avoid the bait of Ford stock placed there by the markets. The price tag looks phenomenal on paper. But in reality, F is a company that’s struggling to keep up with the competition. It won’t completely self-destruct, that much is for certain. But the pain of sticking around longer than you should is one that can be avoided.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.