Ford Motor Company (NYSE:F) may be one of the most recognizable companies in the world, but F stock has had a forgettable run over the last several years.
In fact, for the last four years, Ford stock hasn’t done much of anything besides slide lower. In July of 2013, Ford stock was around $14. Today, its around $11. That is 20%-plus decline.
Moreover, Ford stock hasn’t traded higher than ~$15 or lower than ~$10.50 in that time frame. That is a relatively tight and well-defined price range.
Right now, Ford stock is near the bottom of that range, and that may make some investors think this is a good buying opportunity. After all, the chart does make F look like a “buy the dip, sell the rally” type of stock.
But that is an over-simplified view of Ford stock. F is not a buy at these levels, and here’s why.
Why You Should Avoid F Stock
It is true that F stock is in a trough right now, but it is in that trough for good reasons.
The current stock price dip started at the end of the March when Ford gave a weak Q1 profit guide. The Street was looking for Ford to post earnings-per-share of $0.47. Management said EPS would look more like $0.30 to $0.35 (versus $0.68 one year prior). Management credited the weak profit guide to higher costs, lower automobile volume and foreign exchange headwinds.
That weak profit guidance was followed up by a string of disappointing sales reports from Ford. Ford reported that unit sales fell 7.2% in March 2017, versus expectations for a 5.6% decline. The April sales report was more of the same (a 7.1% decline versus a -5.5% estimate). The May sales report was surprisingly strong, and that caused shares to perk up, but unit sales once again contracted in June (a decline of 5.1%).
But this is nothing endemic to Ford. In fact, auto sales are slowing everywhere, and 2017 is on track to the be first year of auto sales declines since the recession. Simply, after a multi-year run up, demand is now slowing. That is only natural, but the worrisome part for Ford shareholders is that certain headwinds will depress demand into the foreseeable future.
Firstly, interest rates are rising. As credit gets tighter, car sales will take a hit. The consensus expectation is for interest rates to continue to slowly rise. In other words, the interest rate headwind is a long-term one that the auto industry will have to adjust to.
Secondly, private car ownership is far less important to Millennials than it is to their parents. The rise in popularity of ride-sharing services like Uber and Lyft have made it so that the need to own a car is lower now than it has been in recent memory. This is particularly true for younger, urban-oriented demographics who do not drive that much and are already smartphone savvy.
Moreover, the more car owners opt to use Uber and Lyft, the less miles they put on their cars. The less miles they put on their cars, the longer those cars will last. In this sense, a collateral negative effect Uber and Lyft have on the auto industry is a longer upgrade cycle. That means less cars purchased per year, and implies further declines ahead for the auto industry.
Thirdly, Tesla Inc (NASDAQ:TSLA) and the whole electric car revolution have only gained momentum this year. TSLA stock is up nearly 46% year-to-date. Ford stock is down 7%. The more investors get excited about Tesla, the more they will worry about Ford.
Overall, there really isn’t much to like about Ford stock at these levels other than the fact that its near the bottom of trading range. That is a bearish set-up, especially considering the stock could crash through the bottom of the trading range given the current auto industry headwinds.
Bottom Line on Ford Stock
At best, F is a sideways stock. At worst, it will lose you money. As such, investors should go ahead and park their money elsewhere.
As of this writing, Luke Lango held no positions in any of the aforementioned securities.
