My latest moves in the stock market shock even me. Case in point: Ford Motor Company (NYSE:F), which most people think is a dead loser. Well, I bought it. I’m officially long Ford stock.
Oh, and while doing that, I’ve been dumping winners like Apple Inc. (NASDAQ:AAPL) and Alphabet Inc. (NASDAQ:GOOGL).
If you hew to the advice from Morgan Stanley (NYSE:MS), you’ll think I’ve lost my mind. True, F stock is in the doghouse, the company is dumping 15,000 good workers and it just fired the CEO.
Still, you don’t make money by following the herd. You make money, or in this case protect money, by defying it.
Bet the Jockey
While I bought Ford stock before the company fired Mark Fields, I really like his replacement, Jim Hackett.
Hackett, 62, has a resume some find hard to describe. He ran Steelcase Inc. (NYSE:SCS) during the financial crisis and the office furniture maker survived the Great Recession. He was then named athletic director at the University of Michigan — he’s the guy who hired Jim Harbaugh to coach the football team. That move has been a financial winner, too. (Much to the consternation of Buckeyes fans everywhere.)
People like Jim Hackett and tend to see what they want in him. Executive chairman Bill Ford compares Hackett to his legendary predecessor, Alan Mullaly.
Before becoming CEO, Hackett was running Ford’s “connected car” unit. He has a good reputation in Silicon Valley. This is going to be key to a turnaround plan, because car companies are entering an era where the physical car is said to be worth less than the technology inside them.
His first deal in that direction is to partner with a start-up called Canvas, which will do short-term leases on used Fords, keeping their value high and bringing in needed cash. He has hit the ground running.
What Ford Needs
As I discussed in a recent article about Ambarella Inc (NASDAQ:AMBA), technology solutions evolve quickly, hardware becoming a cheap commodity within a few years of being a miracle. What matters is the software and the business relationships, the ability to move what you’re doing into apps in a cloud. Hackett understands that.
At Steelcase, which also was a family-owned enterprise, Hackett focused on what his customers would want, buying a design house called IDEO and letting it run itself, then selling it back to the founders when they got itchy. IDEO, in turn, helped Steelcase create products that would fit in an open office plan, would be easy to move and would adapt to technology as it changed from being a wire-filled PC under a desk to a wireless screen on top of one.
Ford has hidden strengths that Hackett can tap.
Silicon Valley has learned that making cars is hard, but having cars is necessary. The new CEO also understands that, in the future, cars go from being products in driveways to software-defined services. He’s a “Michigan Man” who is just as comfortable at Stanford, and ready to do whatever deals are necessary to get Ford where it needs to be.
Hackett will be well compensated if he succeeds. His contract starts at $1.8 million but is loaded with incentives based on performance. It looks short of what Fields earned, but if he can get the stock price up, he’ll do much better. I like those kinds of contracts.
Bottom Line on Ford Stock
I’m not buying Ford to make a quick killing. But even if its profits are cut in half, as Morgan Stanley believes, Ford can still afford the dividend that’s paying me more than 5%. Take out Fields’ fourth-quarter loss — $783 million or 20 cents per share — and F today has a single-digit price-to-earnings multiple. The market cap is less than one-third of its annual sales.
While other stocks, even Silicon Valley stocks, have stretched valuations and may get pummeled in the next downturn, Ford is unlikely to fall much and will pay me to await better times. A good bear market will give Hackett a better position as the driverless car era opens — one he’s well-equipped to take advantage of.
In short, in Ford stock, I’ve bought a defensive play — one that will pay me generously (about 5.3% at current prices) to own it, with a good driver who knows how to work the angles that need to be worked.
Also, selling those winners puts me nearly 33% in cash, and I’m hungry for more.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in F.
