As hard as it is for Ford (NYSE:F) shareholders to admit, Ford stock is proving in recent months that it’s not “built Ford tough.”
Since the market bottom in March 2009, F stock has traded below $10 on only two occasions: July 2012 and August 2018.
Either we are looking at one of the biggest value buys since the bull market began nine years ago or Ford, the investment, is permanently broken.
I have no idea which it is, so I thought I’d bring in some of my InvestorPlace friends to give me a helping hand with analyzing the Ford stock price.
Ford Stock Is a Big Value Play?
To understand why we’re looking at a Black Friday deal of the tallest order, I’ve got Dana Blankenhorn to fill in the blanks on why Ford stock is misfiring, and more importantly, why that’s going to change.
“Currently, it appears that one of the worst calls I’ve made here at InvestorPlace was telling you to buy Ford,” Dana admitted Aug. 17. “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.”
It takes a big person to admit when they’re wrong.
However, one thing I’ve learned in this business is you can be right for all the wrong reasons and wrong for all the right ones. Luck, though we don’t like to admit it, sometimes plays a big part in our winning calls.
So, why is the Ford stock price appealing at the moment?
For Dana, it comes down to the fact that F generated more than $3 billion in free cash flow in the quarter — that’s more than the dividends it will pay out over the course of an entire year — and it is trading at six times earnings, one quarter the price-to-earnings multiple for the average S&P 500 company.
Essentially, Dana argues that despite what the analysts say, Ford is still very much a viable business.
There Are Other Options
The great thing about investing is that it’s not something you do in a bubble.
If Ford were the only stock to buy in the automotive industry, I could see investors taking a much closer look at its business to fully understand why it’s trading below $10-a-share.
But it’s not the only automotive stock, and we don’t invest in a bubble.
Sadly, Sergio Marchionne, one of my favorite CEOs in modern business history, died recently. He took two lousy car companies — Fiat and Chrysler — and turned it into one good one: Fiat Chrysler Automobiles (NYSE:FCAU).
You can ask the Agnelli family, Fiat Chrysler’s largest shareholder, what they think of Sergio Marchionne’s legacy. He made them billions.
Anyway, that’s a lot of words to say FCAU stock is worth considering over Ford stock, given Jeep continues to dominate the global SUV market.
What About GM?
The other possible alternative to F stock is Mary Barra and General Motors (NYSE:GM) … right here in America.
I’ve never been a fan of GM’s SUVs, but they’re starting to bring out some good looking vehicles, which suggests I ought to visit a GM dealership in the next year or so when I begin my search for a new vehicle.
That’s not something I would have said two years ago — and I’m a big Jeep guy.
InvestorPlace’s Bret Kenwell made a quick little comparison of Ford stock versus GM back in July. He went with the latter for two reasons.
First, its Cruise Automation business was acquired for a song ($1 billion, including incentives), is now worth an estimated $11.5 billion in less than three years, and it represents the future of GM.
Secondly, although he mentions that GM’s growth profile is slightly more attractive than Ford’s, it’s the fact that the Ford stock price might be permanently stuck, that’s got him leaning on GM.
“I would caution investors about buying Ford stock “because it’s undervalued” though. A stock’s valuation is the market’s opinion of it,” Kenwell wrote July 3. “If it’s decided that Ford is worth 5 to 7 times earnings for many years, I would not use my investment dollars to bet on that changing.”
Time is money. There’s an opportunity cost for every dollar invested in F stock. I’m not sure you can say the same thing about GM ,which is up 6% over the past 52 weeks while stock in Ford is down 5% in the same period.
Is It Time to Buy F Stock?
While I can appreciate Dana’s contrarian play with Ford, I don’t think it’s going anywhere with Jim Hackett as CEO … something I said more than a year ago.
Are there worse investments than Ford stock out there? You bet.
Should you buy F at these prices? Only if you’re a very patient investor, who doesn’t need the money anytime soon.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.