Since I convinced myself to buy stock in Ford Motor Company (NYSE:F) last May, my investment is up 20%. That’s no big deal. My gain in F stock is merely in line with the averages. The S&P 500 is up 17%, and the Dow Jones Industrial Average is up 23%.
What’s worse is that my gains haven’t been due to Ford improving its financial performance. They’re entirely due to an expansion of the price-earnings ratio, which is now near 12, instead of the 7 it was at when I called F stock a “screaming buy.”
The 15-cents-per-share dividend provides lift and, at the price I paid for the stock, my yield is over 5%. But if you buy now — with F stock at about $13 per share — your yield is just 4.6%.
So, if you’re not in Ford stock today, should it be in your future?
What’s Wrong With Ford
Ford CEO Jim Hackett set a clear plan last year to focus investment on Ford’s profitable line of trucks, cut the number of car options and prepare for the rise of autonomous and electric vehicles.
But like his hiring of Jim Harbaugh as the head football coach at the University of Michigan when he was the athletic director there, things have not gone according to plan.
To some analysts, Ford is making the same mistakes it made a decade ago, neglecting cars for trucks, which gave foreign nameplates the car market. Even its truck decisions, like putting a diesel engine in the F-150, are coming into question. Our Portfolio Grader now has Ford rated as a “sell” and the average rating on the stock is a “hold,” meaning few are recommending it.
Since Hackett became CEO, Ford results have shown little improvement. September quarter sales of $36.45 billion were little better than the previous year’s $35.94 billion. The expected December quarter sales level of $37.18 billion would fall short of the previous year’s $38.64 billion, with profits up just 10% at 44 cents per share. Cash flow and the balance sheet have shown little change. The finance unit is struggling.
What’s Right With Ford
Hackett is still selling visions.
He was at the Consumer Electronics Show in Las Vegas this week, telling people to “take back the streets” with autonomous vehicles, and touting a test of delivery models with Postmates Inc.
A self-driving vehicle can also be communicating with traffic lights and buses, so Hackett wants to build an open platform to transform transport from something directed by people in their vehicles to a system that manages itself. This includes communicating with bicycles.
The company is completing a $100 million data center and sending its “connected car” team everywhere it can.
December sales were much better than expected, with Ford’s light trucks giving it a 1.3% gain, in line with Hackett’s investment plan.
The problem for Hackett is that the future looks better than the present, and the present is just a vision. He is talking about a society transformation the likes of which hasn’t been seen since the 1920s, when cars first came to dominate the landscape. He can sell it, but increasingly critics are asking, can he make it?
The Bottom Line on F Stock
When I bought F stock, I didn’t expect it would be doing as well as it is doing. I bought the stock for the dividend, not for a capital gain, yet I’m sitting on a 20% capital gain due to a rising stock market.
I don’t expect the stock market to keep rising, but I do expect that dividend to be maintained. So long as it is, I’m parked in Ford. But the fall in yield means you probably shouldn’t join me right now.
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.
