Reading the headlines, you might find it hard to believe that Ford Motor (NYSE:F) is trading near 2019 highs. Ford recently announced 7,000 layoffs and analysts say they need to get rid of 23,000 more employees. The China-U.S. trade war is likely to hammer Ford stock, and its 2019 guidance is at risk.
Truly, F stock looks like its on a road to nowhere.
But is it? Ford sales were $160 billion in 2018 and it’s on pace to match that in 2019. It’s been making money for over four years. The balance sheet shows just $11.5 billion of debt on $263 billion of assets, although it finances purchases and thus shows nearly $100 billion in current liabilities.
Why are so many analysts saying Ford stock is circling the drain?
The Two Upcoming Auto Transitions
Like every car company Ford is struggling with two transitions, the electric motor transition popularized by Tesla (NASDAQ:TSLA) and the autonomous revolution of Alphabet’s (NASDAQ:GOOGL) Waymo unit and others.
Electric cars are expected to take most of the market over the next decades, but no one really knows how fast the transition will occur.
As a result, all the major auto stocks are rolling over. Ford’s loss of nearly 13% over the last twelve months can be placed next to General Motors’ (NYSE:GM) 6%. Toyota Motor (NYSE:TM) is down just as much as Ford this year, while Fiat Chrysler (NASDAQ:FCAU) is down a whopping 42%. That’s even worse than Tesla, which is down 31% over the last 12 months.
There are optimists out there. Amazon (NASDAQ:AMZN) CEO Jeff Bezos insists he’s “fascinated” by the industry’s prospects and recently led a $700 million funding round for an electric car startup. TV analyst Jim Cramer remains bullish on Ford stock because of its pullbacks from the international market and devotion to the F-150 pick-up.
Ford’s Strategy
If Cramer is right then the current Ford stock price is a bargain, with a market cap less than one-fourth its trailing year sales and a dividend backed by earnings and a yield of 5.74%. But I got caught in that trap a few years ago and lost money in Ford stock. One of easiest mistakes to make is to tell yourself what a stock should be selling at and ignore what the market says the stock is worth.
Ford’s current layoffs represent 10% of its white-collar workforce, 5% of the total. While getting out of sedans, Ford is preparing a new line of smaller Ranger trucks and Bronco sport utility vehicles. Ford continues to bet on electric cars, autonomous cars and connected cars.
You can criticize Elon Musk all day, but he has completely overturned the conventional wisdom of the car business. Even Ford sees his vision as its future. The only difference is that Ford wants to make hay on nostalgia today.
The Bottom Line on Ford Stock
It’s hard to believe, reading the headlines, that Ford scored a magnificent beat on first-quarter earnings, net income of 44 cents per share, against expectations of 27 cents and a dividend of 15 cents. The restructuring Hackett promised two years ago is taking place.
It’s not that analysts don’t believe in Ford stock. They don’t believe in the car business as a whole. They don’t like the new conventional wisdom. They want the old verities back. The idea of a Snap (NASDAQ:SNAP) executive becoming chief financial officer of an auto company, as Tim Stone will do at Ford on June 1, repels them.
That’s just too bad. Yesterday’s gone, and it’s the car companies that don’t stop thinking about tomorrow that will survive.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
