In the last 12-months, Ford Stock (NYSE:F) has failed to convincingly break out above $10. In the recent past, F stock touched a high of $10.5 and then proceeded to drop by 15% to its current level around $9. The sideways movement of F stock price has been in sync with the company’s relatively stagnant revenue trends.
However, I believe that, despite macroeconomic headwinds, F stock is attractive at its current levels. I therefore think that F stock should be gradually accumulated for $8 to $9 per share by investors looking for medium-to-long-term gains.
The Macroeconomic Headwinds
Yield curves have inverted for the first time in a decade in the United States and the United Kingdom. The inversion may foreshadow an upcoming recession. China’s industrial production has grown at the slowest pace in 17 years, and there is little doubt that the country is in the midst of a sustained slowdown. The Euro Zone’s composite PMI is also on a downward trend, indicating renewed weakness in the bloc’s economic activity. India’s automobile sector has grown at the weakest rate in 19 years.
Even if the global economy avoids a recession, it is clear that the remainder of 2019 and 2020 will likely be challenging for the automobile sector. However, I see two positives for Ford stock amidst the worries.
First, unlike the 2008-09 crises, Ford is well positioned from a balance sheet perspective. As of June 2019, the company had cash and cash equivalents of $22.1 billion and short-term marketable securities of $15.9 billion. Those funds will help Ford navigate these relatively challenging times.
Second, the Federal Reserve has already lowered interest rates by 0.25 percentage points, and it will likely continue to pursue expansionary monetary policies. That will be positive for America’s automobile sector, which is the key revenue and EBITDA driver for Ford. As a result, the Fed’s policies will provide Ford stock with a positive catalyst.
The Electric-Vehicle Pipeline
Ford has already announced an investment of $11 billion in electric vehicles (EVs), and it plans to launch 40 hybrid and fully electric vehicles by 2022. Ford seems confident about the outlook of its EV business, and its CEO says the company has a “big surprise” coming on the EV front in 2020. The company already has 16 EV models under development.
Ford has also invested $500 million in Rivian Automotive LLC, which makes electric pickups.
Given Ford’s upcoming product launches and consumers’ increasing preference for electric vehicles, Ford stock can gain some bullish momentum. It is worth pointing out that China is already a big market for electric vehicles, and, by launching many new EVs, Ford can possibly gain momentum in the Chinese markets. Ford has big plans for China , as it may launch 30 new vehicles in the next three years there. One-third of those new vehicles will be EVs.
Robust Pickup-Truck Sales Performance
One of the key highlights of the company’s second-quarter performance was the robust year–over-year growth of its pickup-truck sales. The revenue generated by its pickup trucks jumped 7% YoY. In Q2, Ford had its best pickup-truck sales performance since 2004. The company is the leader of the commercial vehicle space in America and Europe.
The commercial vehicle segment (including pickup trucks) is important, as it is one of the key EBITDA margin boosters for Ford. In the next five years, the company intends to double the profitability of its commercial-vehicle business.
It is important to mention that Ford and Volkswagen (OTCMKTS:VWAGY) have agreed to jointly develop commercial vans, medium-sized pickups, and autonomous vehicles for global markets. This partnership is likely to boost Ford’s commercial-vehicle business beginning in 2022.
Final Words on Ford Stock
F stock price has mostly been rangebound or lower in the last 12-months. However, the company has been reorganizing and restructuring.
Economic headwinds might cause the company’s quarterly results to remain relatively depressed in the nearer term. However, the company’s balance sheet probably won’t come under any pressure.
On the positive side, once global growth stabilizes, attention will shift to Ford’s exciting product lineup. The company’s entry into the hybrid and electric-vehicle market can be a growth catalyst for Ford and a positive catalyst for Ford stock. In addition, Ford’s partnership with Volkswagen on autonomous cars will keep the markets excited about F stock.
Given these factors, Ford stock remains attractive and is in a gradual accumulation zone. Once F stock breaks technical resistance in the $10 to $11 per share area, it can rally sharply. However, investors need to hold F stock for 12-24 months to benefit from Ford’s likely upcoming rebound.
As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.
