Ford Motor Company (NYSE:F) is off 2% on Thursday thanks to discouraging news, putting the automaker into a roughly 9% slide in just more than a week — and setting Ford stock up as either one of the best deals on the market right now, or a massive value trap.
Ford provided an outlook for its fiscal first-quarter earnings that disappointed Wall Street earlier this morning. Ford is looking for 30 cents to 35 cents in adjusted profits — far worse than the 68 cents the company earned a year ago, and well below analyst expectations for 47 cents.
There’s nothing good in it: The company blamed a combination of lower volume and higher costs. Ford stock was hit again this week as a result, and even rival General Motors Company (NYSE:GM) took a fractional slide in sympathy.
That follows up dismal February auto data that showed sales of 207,464 for Ford, down 4% year-over-year, including a 24% drop in domestic car sales. The only upside of that report was 4.9% growth in light-truck sales to 156,814.
But it looks like the trend of lower auto sales in 2017 will continue; Ford’s sales are off 2.5% YOY so far in the early year.
Despite Ford’s ongoing problems, there are at least a couple of reasons to like F stock right now.
The So-So Bull Case for Ford Stock
If you want to argue for Ford right now, it’s all in two of the most basic of metrics: value and income.
For one, Ford stock trades at meager metrics right now, including a trailing price-to-earnings ratio of just 10 and a forward P/E of 7. Meanwhile, F trades at just 30% of book right now!
And thanks to its recent losses, Ford’s dividend has jumped above the 5% mark — still significantly higher than the 4.5% payout on GM shares.
Technically speaking, Ford at least looks good as a bounce-back play — even if not immediately. The stock has sunk to prices last seen in late November after plummeting through both the 50- and 200-day moving averages. However, the company’s Relative Strength Index (RSI) is now in oversold territory, signalling that some sort of rebound (or at least respite) might be in the offing.
If one did want to play a potential bounce, I’d suggest watching Ford stock in the coming days to see if it can at least maintain this level. If not, you’re better off waiting for F to reach the $11 mark, which the stock briefly plumbed last November.
But …
There’s a reason why Ford is offering this kind of value right now.
Ford’s earnings are expected to contract from $1.76 per share to $1.64 this year, then “recover” to $1.71 — still less than it earned last year. That’s on two straight years of projected revenue growth of less than 1%.
Moreover, there are other near-term headwinds, including a possible border tax and tarriffs on imports, which would result in significantly higher car prices to offset higher costs on the tax front. That would kill auto demand, at least in the short-term.
Plus, Ford stock could be weighed down by growing anxiousness over nearly $9 billion in underfunded pensions.
Ford could be a salvage play — there are few 5% yielders offering the same kind of value proposition as F stock right now. But from a business perspective, there’s not much to like, and momentum is clearly against Ford.
Dividends are mostly about safety, and Ford doesn’t offer that right now. Quicker traders could consider buying calls to capture any potential dead-cat bounce. But buy-and-hold investors should wait for some sort of positive news on the operational side before jumping in on hopes of a rebound.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
