Ford (NYSE:F) has been a disappointment to long-term investors. The shares have rallied nicely of late, gaining 28% in 2019 alone. But F stock hit a near-nine-year low toward the end of last year. Even including dividends, shareholders have lost money from 2013 and 2014 peaks.
That said, the news in recent months has been better.
Ford has slimmed down, pretty much ending all of its U.S. passenger car production in favor of SUVs and pickup trucks. Cost-cutting has continued, most recently with a 10% cut of its white-collar workforce. As a result, long-running “peak auto” fears haven’t made their way to Ford earnings, which are expected to grow (if modestly) in both 2019 and 2020.
Yet the Ford stock price sits where it did at the beginning of December. Not even a blowout Q1 report — one that I thought could change the narrative surrounding F stock — has done much more than recapture losses taken during the plunging broad market of late 2018. The question then becomes this: If stronger-than-expected earnings can’t move Ford stock higher, what will?
Can Wall Street Move F Stock Higher?
One place to look might be Wall Street. Analysts simply aren’t behind Ford stock yet. The average target price of $10.36 suggests just 6% upside. In contrast, the consensus target of $47 for General Motors (NYSE:GM) implies a whopping 35% gain over the next 12 months.
F stock did get an upgrade from Bank of America (NYSE:BAC) Merrill Lynch after earnings, but that aside, the Street still sees Ford as a “show me” story. Certainly, worries about the broader macroeconomic cycle explain analysts’ reticence in part, but those same worries should apply equally to GM, a stock Wall Street seems to like at the moment.
From a mid-term standpoint, analysts’ relatively neutral view of probably is a good thing for the Ford stock price. With another good quarter or two, it’s not difficult to imagine Street notes highlighting the underlying turnaround and raising out-year forecasts and target prices.
As we’ve seen with Tesla (NASDAQ:TSLA), analysts don’t often get out in front of a story. If Ford can string together a few more solid quarters, analysts may come along with higher target prices and more optimistic commentary. But it’s likely to take at one more good quarter, at least, to change the Street’s mind.
EVs and AVs
The most obvious way for Ford to assuage peak auto fears is to win in autonomous and electric vehicles. In both areas, Ford seems behind Tesla and Alphabet (NASDAQ:GOOGL) unit Waymo. Even GM spent over $1 billion for startup Cruise, while Ford’s efforts have remained mostly in-house.
But Ford is starting to make some noise. The company’s $500 million investment in privately held Rivian should lead to deliveries starting late next year. The Escape will see hybrid and plug-in offerings in model year 2020, with the company targeting some 40 models by 2022.
The EV opportunity, however, similarly seems like a ‘show me’ story. Tesla’s struggles so far in 2019 suggest that EV demand may not be what proponents believed. Foreign manufacturers like Volkswagen (OTCMKTS:VWAGY) and BMW (OTCMKTS:BMWYY) are moving more aggressively, and more quickly, into electric vehicles. Those companies likely have a noted edge in their home markets in Europe — and competition in China is even more intense, with Nio (NYSE:NIO) one of literally dozens of companies targeting the space.
Like with Wall Street opinion, AV and EV optimism seems unlikely to move the Ford stock price in the near term. In fact, while it might take only a couple of strong quarters to get analysts on board, the company’s EV ambitions likely will take at least a couple of years to change the story around F stock.
What Moves Ford Stock?
It’s difficult to see what else can drive F stock higher in the near term. The 5.74% dividend yield is attractive but hasn’t helped Ford stock on its long descent from $16. A cheap 12.5 P/E multiple could drive value investors — but at the moment GM stock’s 5.53x is cheaper on that front.
Tariffs are likely to dominate the headlines for some time to come. A decade of economic growth in the U.S. mean that worries about a downturn should persist until that downturn actually arrives. There’s plenty of reason to see the proverbial lid staying on Ford stock — unless the company’s results are simply so good that investors can’t ignore them.
Still, all that doesn’t mean that F stock isn’t a buy, or isn’t a buy right now. I still think, as I wrote after turning bullish last year, that the Ford stock price should be over $10. The near 6% yield does provide some incentive for patience. And the company’s moves to cut passenger cars and lower operating expenses should boost free cash flow for some time to come, giving that yield some real support.
Still, investors buying Ford stock at these levels should plan to be in the stock for the long haul and be willing to ride out some potential downturns from broad market or economic fears. F stock probably should trade higher but I wouldn’t be surprised if it takes quite a while for it to do so.
As of this writing, Vince Martin has a bearish options position in TSLA. He has no positions in any securities mentioned.
