The Donald Trump rally has been in the rearview mirror for Ford Motor Company (NYSE:F). But then again, it has been a long slog for the beleaguered shares. For the past five years, Ford stock has posted a roughly 1% return.
In the meantime, other auto makers have left the company in the dust. During the past half-decade, General Motors Company (NYSE:GM) is up about 44% and Toyota Motor Corp (ADR) (NYSE:TM) has gained 35%. Then there is the speed demon, Tesla Inc (NASDAQ:TSLA), which has returned a staggering 846%. Of course, the company has a market cap that exceeds the value of Ford stock.
So yes, it is understandable that shareholders are not feeling so good. Although, whenever there is widespread bearishness, there could be a contrarian opportunity, right?
Perhaps so. But I wouldn’t put too much money on it (or any money on it!), as the Ford earnings for the first quarter, scheduled to be reported on Thursday, are probably not going to be too inspiring. The Street is looking at an 1.6% decline to $34.7 billion and earnings of 36 cents a share, down from 68 cents a share for the same period a year ago.
The Mixed Picture for Ford Stock
Now, there are some silver linings. Let’s face it, Ford knows how to build top-quality trucks that gin up tons of demand. Keep in mind that the F-Series is the best-selling truck for the past 40 years.
Yet the issue — which has dogged F stock for some time — is that the company cannot seem to move beyond this. Then again, the company must deal with intense competition and does not have the kind of scale of mega operators.
Interestingly enough, Fiat Chrysler Automobiles NV (NYSE:FCAU) CEO Sergio Marchionne has recently noted that an automaker needs to sell 15 million vehicles per year to remain viable. However, as for Ford, it produced 6.65 million vehicles last year.
If anything, Ford has become a niche player. This has meant that the company has really been playing catch-up. This has been the case with the moves into China, which have struggled. In the latest quarter, sales plunged by 21%.
But the lack of scale could prove a problem with Ford’s moves into next-generation technologies. While it’s true that the company has made some encouraging moves — such as with a $1.2 billion investment in Canada for an R&D facility, which involves hiring 400 engineers from BlackBerry Ltd (NASDAQ:BBRY) — these investments are likely to be relatively small. The fact is that TM, BMW, GM and TSLA have much larger capital bases to push their own efforts.
It also does not help that tech companies like Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), Uber, Intel Corporation (NASDAQ:INTC) and Qualcomm, Inc. (NASDAQ:QCOM) are driving up the costs for hiring and M&A.
Bottom Line on Ford Stock
F stock is likely to feel the pressures of a slowing in auto sales. For example, in March there was a 1.6% drop to 1.55 million vehicles.
Keep in mind that this could be more than just a blip. If anything, the market may be moving into a cyclical downturn. After all, auto sales have seen strong growth over the past seven years, which included two consecutive records. So it does seem reasonable that there will be a cooling off period.
Granted, Ford stock is trading at an attractive valuation, with the price-to-earnings ratio at a mere 10X. But of course, a stock can languish at a low valuation for a prolonged period of time, especially when there is intense competition and slowing customer demand.
Tom Taulli runs the InvestorPlace blog IPO Playbook as well as OptionExercise.com, which provides interactive tools & services for employee stock options of pre/post IPO companies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.