Ford Motor Company (NYSE:F) stock has had a nice run recently. Ford stock up about 15% off its mid-August lows versus just a 6% gain for the S&P 500. That is some nice alpha.
But let’s zoom out. Over the past six months, Ford is up just 7% to the S&P 500’s 10% gain. Year-to-date, Ford is actually marginally lower while the S&P 500 is higher by 15%. Over the past year? Ford is essentially flat. The S&P 500 is up 20%. Past 3 years? Ford is down 15% while the S&P 500 is up more than 30%.
Get the picture?
Ford stock has been far from a winner in recent history and that isn’t going to change anytime soon. The stock already had its day in sun. The automotive industry has hit peak cycle and demand is now winding down. Technology provides some serious long-term headwinds to that demand coming back. And Tesla Inc (NASDAQ:TSLA) looks more likely than ever to steal huge market share over the next several years.
Put it all together, and you’ll understand why Ford stock is going nowhere anytime soon.
3 Big Reasons to Avoid Ford Stock
Here are the main reasons to avoid Ford stock.
Firstly, Ford stock already had its day in the sun. Automotive demand has been on fire. Car sales have soared the past two years, but it looks like the peak is here, and the market is starting to cool off. Big gains are expected to turn into gradual declines, and those gradual declines are expected to last into the foreseeable future. Usually, Ford stock doesn’t head higher when the automotive market is in retreat mode.
Secondly, the rise of the at-home economy provides a serious long-term headwind to automotive demand. People don’t drive to the movies as much as they used to. They sit at home and watch Netflix, Inc. (NASDAQ:NFLX). People don’t go out and eat as much as they used. They sit at home and order food from GrubHub Inc (NYSE:GRUB). People don’t grocery shop as much as they used. They sit at home and have Blue Apron Holdings Inc (NYSE:APRN) deliver meal kits.
And when those people stop sitting at home, they don’t drive their own cars as much as they used to. They use ride-sharing services like Uber and Lyft.
Overall, consumers don’t really need to own a car in this booming at-home economy. And those that do will inevitably put less miles on the car than they did before, implying a longer upgrade cycle and less frequent return sales for Ford.
Thirdly, the electric vehicle revolution is here and that isn’t a good thing for Ford stock. Governments across Europe and Asia are setting goals to be all-electric by 2025 to 2040. While Ford is certainly positioning itself to compete in this new era of electric vehicles, competition will be stiffer than it currently is. Namely, Tesla will rise to the forefront of this market and steal huge automotive market share from Ford and others.
With those three major headwinds in place for the next several years, I don’t see any reason to own Ford stock here.
Bottom Line on Ford Stock
Lets do some math here. GAAP earnings hit $1.15 per share last year. That is a peak year. Earnings are expected to fall slightly this year, and then fall more dramatically next year. To be aggressive, lets assume GAAP earnings stabilize at $1.15.
Over the past 5 years, Ford stock has traded around 10.5-times GAAP earnings. Throw that 10.5-times multiple on $1.15 fiscal 2018 earnings estimates, and you get a one-year price target of about $12.
Today, F stock price is right around $12.
Therefore, I reiterate my original claim. Ford stock is going nowhere anytime soon.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.