In a trying environment, Ford Motor (NYSE:F) stock is up nearly 28% year-to-date, and Ford stock price today looks poised to rise, after the president’s decision over the weekend to avoid imposing tariffs on Mexico for the time being.
The 2019 gain of F stock is more than triple the gains of rival General Motors Co. (NYSE:GM), and Ford stock is also beating the NASDAQ OMX Global Auto Index by a margin of better than 9-to-1 this year.
Those are impressive statistics, but there is also no denying F has been caught up in the U.S. trade wars. Over the past month, F stock has lost 6%, confirming its status as a name that’s vulnerable to tariff threats. However, as mentioned earlier, Ford stock price today looks posed to climb, as the stock was up 1.5% in pre-market trading as of 7:30 AM.
A Buying Opportunity?
President Trump has long decried various trade deals implemented by previous presidents, including the North American Free Trade Agreement (NAFTA). In fact, one of the cornerstones of his 2016 campaign was his promise to scuttle NAFTA. For about two months leading up to Trump’s November 2016 election victory, shares of domestic automakers, including Ford stock, struggled, but the group recovered soon after Trump won the contest.
And while efforts to renegotiate NAFTA took a couple of years, Ford stock climbed slightly higher in 2017, Trumps first year as president. But although the tariffs the president threatened to levy on Mexico appear to be on hold for now, the issue for F stock is that its vulnerability to tariffs is not limited to those on Mexico.
China recently hit Ford’s Changan Ford, the company’s China subsidiary, with a $24 million charge. In the grand scheme of things, that is a small fine, but some market observers expressed concern that the penalty show’s China’s willingness to escalate the trade war against the U.S. by levying fines against American companies doing business in the world’s second-largest economy.
Changan Ford did not fan the flames of controversy by complaining about the fine, which was a sound move, but Ford sells 1.3 million cars per year in China, and while the Detroit-based company is not the top dog in China’s vast auto market, it does have a meaningful impact on F.
In the immediate- to near-term, much of the thesis on Ford stock revolves around the various trade conflicts, and that could mean the recent decline of F stock is not a buying opportunity.
The Bottom Line on F Stock
Even if the tariff issue is ignored, something investors considering F stock do not have the luxury of doing, Ford’s domestic auto sales must be monitored. The major automakers reported higher sales in May, the first such monthly increase this year. Through April, U.S. auto sales had dipped 3% in 2019.
The direct impact of the May data on Ford stock is not yet clear because Ford and GM update investors on sales on a quarterly basis, while some rivals do so monthly. Some reports indicate F sold fewer of its popular F-series trucks last month, but sales of its Ford Ranger, a midsize pickup, increased.
In the current environment, investors considering F stock need to assess their individual levels of risk tolerance. For investors looking to reduce volatility within their portfolios, F stock probably is not an appropriate near-term bet. Adventurous investors willing to wager that Trump will cave on his various remaining tariff threats, prompting a quick rally by automakers, may want to give F a look.
Todd Shriber does not own any of the aforementioned securities.
