Currently, it appears that one of the worst calls I’ve made here at InvestorPlace was telling you to buy Ford (NYSE:F).
If you feel badly about it, I feel worse, because I did indeed buy Ford stock. I figured the stock couldn’t fall much below $12 per share and that the 5% dividend looked safe, based on earnings.
Ford stock opened on Aug. 16 trading at $9.50 per share. By way of perspective, the Ford market cap is now $37.5 billion, just 65% of Tesla’s (NASDAQ:TSLA) $57-billion market cap.
That’s $37.5 billion for a company whose quarterly sales in June were $38.9 billion. Ford made a profit of $1.06 billion on those sales, enough to pay the 15-cent-per-share dividend with room to spare. Tesla lost almost as much money as Ford made, $742 million, on just 10% of Ford’s revenues, $4 billion.
But Tesla is worth over one-third more?
Why Analysts Hate Ford
I bought into the Ford story shortly before Jim Hackett became CEO, in May 2017, and I’m now down 13.5% on that investment, which the year’s dividends don’t make up for.
I liked that Hackett knew how to hire and that he’d come from Silicon Valley, albeit as CEO of furniture maker Steelcase. I figured that if anyone could get Ford the deal to make autonomous vehicles and electric motors, Hackett was the guy.
So far it hasn’t worked out that way. Ford is basically getting out of cars in favor of trucks. It is going it alone in autonomy, with plans to introduce a self-driving vehicle in 2021.
Analysts don’t like it, and investors used that as an excuse to sell the shares after a “disappointing” second quarter, highlighted by $11 billion in “restructuring” costs.
That $11 billion wasn’t entirely written off in the second quarter. It’s what Ford expects to write off over three to five years, dropping $7 billion in cash, as it deals with its past failures in emissions and Asia.
The second quarter earnings were barely half what Ford earned a year earlier, but analysts were especially upset that Ford canceled its September “Investor’s Day,” where they get schmoozed. The company says it will let them know what’s going on each quarter.
They probably didn’t much like the company’s participation in Detroit’s revitalization, either, which includes rebuilding a downtown train station and its Dearborn headquarters, and connecting the center of Detroit with the University of Michigan’s Ann Arbor campus. It’s part of a “new mobility ecosystem,” a testbed for how cities will function in an age of autonomous vehicles.
Why I Still Like Ford Stock
Still, the poor results don’t threaten the dividend, which now yields a whopping 6.35%. The company still generated nearly $5 billion in operating cash flow for the quarter, with free cash flow of over $3 billion.
Ford isn’t growing, but it’s not shrinking either. Hackett isn’t as tight with Google (NASDAQ:GOOGL, NASDAQ:GOOG) as Fiat Chrysler (NYSE:FCAU), but the other Silicon Valley companies interested in autonomous vehicles, like Apple (NASDAQ:AAPL), have yet to announce their production plans, and cars are hard to make at scale (ask Elon Musk).
With the recent earnings haircut, Ford stock is now selling at less than six times its earnings, at a time when the average stock in the S&P 500 is selling at over 24 times earnings. (It won’t stay that way as the second quarter gets folded into the mix, but still.) The stock price, in other words, says this company is going out of business. Its financials and its plans say nothing of the kind.
There are times when being a contrarian investor requires that you take a short-term hit, when the market is running contrary to your calls. You must constantly reevaluate whether you might have been wrong about an investment, and never fell in love with a stock.
But I still can’t find a reason to sell Ford stock here.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in F.