Ford (NYSE:F) has had an even rougher year than the stock market as whole. Ford stock has now lost more than two-thirds of its value since the start of 2018, but the venerable automaker has the stuff to make a comeback, if it can catch a few breaks.
The Dearborn, Michigan-based company has been hit by a double whammy this year: rising interest rates plus the possibility of a trade war.
The auto industry is one of the most rate-sensitive sectors of the economy, as most car buyers need loans to buy the vehicles they want. Plus, the economic expansion is now almost a decade old, and existing demand for cars is leveling off.
News on the trade front hasn’t been any better. Ford’s business in China is just a shadow of what it was three years ago. Not all of this can be attributed to the trade situation, though, as Ford’s longtime rival General Motors (NYSE:GM) has been doing well in Asia.
Ford’s primary problem in China, many analysts believe, has been an inability to keep up with the rapidly changing consumer tastes of the Chinese market
Overall, Ford reported a 6.9% drop in November vehicle sales from a year ago. The decline was across the board: -2.3% in trucks, -4.9% in SUVs and -19.5% in cars.
An Upswing for Ford Stock?
So what is the bullish case for Ford? Despite its woes on the international market, Ford is still profitable, and it has one of the best known brand names in America. Its dominance of certain market segments, such as pickup trucks, is well known.
The company’s third-quarter earnings came in ahead of expectations, even though they were down year over year.
Management has ambitious plans for an $11 billion restructuring that will cut jobs from its salaried workforce of 70,000 employees.
Ford is bringing back its once-popular Ranger mid-size pickup truck. It also has a few new products in the works, such as its reintroduction of the Ford Bronco off-road SUV, which will be based on the Ranger’s platform.
The company is gradually moving away from traditional passenger cars. With gasoline prices falling, the market for heavier vehicles (which are more profitable for Ford) should be strong.
Ford is putting billions of dollars into research and development of new businesses and technologies such as self-driving cars, hoping to compete with upstart rivals like Tesla (NASDAQ:TSLA), one of the most volatile companies around.
Due to the drastic decline in Ford stock price, the price-earnings ratio is below 6. Also, the dividend yield is now over 7%. With a rock bottom valuation like that, Ford stock is a good bet to regain some, but not all, of its value in the new year.
The author does not own any of the stocks discussed in this article.