Ford (NYSE:F), one of the most celebrated names in business history, has been hammered so far this year, losing more than a third of its value since January 18. But the company does have one of the best known brand names in the world, and a marketing and distribution network built up over decades.
Is this stock ready for a turnaround?
It is remarkable how far the once-mighty Ford has fallen. Its market cap (about $37 billion) is now less than its most recent quarterly sales figure ($38.9 billion). And the carmaker actually posted a significant profit—more than $1 billion—in the most recent quarter as well.
Ford’s total value is now substantially lower than Tesla (NASDAQ:TSLA), a company with a tiny fraction of Ford’s revenues, and whose CEO has been behaving erratically on social media and elsewhere all year.
Owners of Ford shares had hoped that the installation of new CEO Jim Hackett would turn things around. Hackett had a strong record as top executive at the furniture maker Steelcase. But so far nothing he has done has sufficed to make the stock look more appealing to Wall Street analysts.
Many market watchers have been unnerved by Ford’s apparent intention to radically reduce its presence in the car market, while switching productive capacity over to truck production. It is true that the truck division, where Ford is the market leader both here and abroad, has been providing a large share of the corporation’s profits in recent years.
But Ford has been a major force in the automobile market for 100 years. Can the massive company really survive on truck profits alone?
But Ford is not planning to abandon automobiles entirely, just to reorganize its priorities. It is also moving forward with research on a self-driving car, and has had productive negotiations with Apple (NASDAQ:AAPL), which is extremely interested in devising the industry standard technology in that area.
Economies of scale matter enormously in the car manufacturing business, as Elon Musk has been learning to his chagrin. Ford’s top management has people who know how to manage giant factories, keep the assembly lines running on schedule, negotiate with unions, and get the finished product to the showroom. Advantages like that should not be underestimated.
One important aspect of Ford stock that should not be overlooked is its dividend, now more than 6.25%. The company will go to great lengths to avoid cutting the payout, as this will set off another round of negative publicity for the firm. With free cash flow of more than $3 billion, the company can keep the checks coming for the foreseeable future.
The bottom line is that while the company has certainly had a tough year, the price has fallen too far too fast and is likely ready for at least a small rebound. The price-earnings ratio has dipped below 6, absurdly low given the company’s revenue and cash flow prospects.
So Ford, once a staple of so many long-term growth portfolios, has become more of a high risk-high reward kind of play. And investors who already own it should hold on for the upswing.
As of this writing, Thomas Scarlett does not hold a position in any of the aforementioned securities.