Ford (NYSE:F) stock has struggled significantly over the past few years for a few reasons, ranging from a global auto market slowdown to Ford falling behind in electric vehicles to the automaker’s sluggish revenue and profit growth trends.Ford stock has dropped from $16 in early 2015 to below $10 in early 2020.
But, trading below $10 in 2020, F stock looks compelling because the problems that have plagued Ford stock over the past few years will ease in 2020 and turn into positive catalysts by 2021.
That is, the global auto market is expected to bottom in 2020 and will likely return to growth in 2021. At the same time, Ford is making a huge electric vehicle (EV) push, which will start in late 2020 and accelerate into 2021 and 2022. The combination of renewed global auto market growth and an aggressive EV push should breathe life back into Ford’s growth outlook and push Ford’s revenues and profits noticeably higher over the next few years.
As its results rebound, so will Ford stock. I think that F stock will climb above $11 in 2020, making today’s sub-$10 price tag look like a good opportunity to buy the shares.
The Global Auto Market is Bottoming
There are three major components behind the bull thesis on Ford stock. First, and arguably foremost, the global auto market is set to bottom in 2020 and rebound in 2021 after steadily declining since 2017.
The global auto market started to drop in 2018 and 2019 amid escalating trade tensions and tightening monetary policy. But trade tensions and monetary policy are now easing and should continue to do so, breathing life back into the global auto market.
As a result, it’s logical that average projections call for global auto sales to stabilize somewhat in 2020, before rebounding in 2021. History also supports this forecast, as global auto market contractions usually last about two to four years.
Ford is one of the largest automakers in the world. Consequently, a rebound of the global auto market will meaningfully boost Ford’s deliveries and revenue.
Ford’s Electrification Push Is Coming
The second main component of the bull thesis on Ford stock is that Ford’s big EV push over the next few years will further energize the company’s delivery and revenue trends.
Specifically, Ford is set to launch its headline EV, the Mustang Mach-E, in late 2020. Early reservation trends for the Mach-E have been promising and indicate that demand for this Mustang-inspired EV is healthy. Further, the Mustang Mach-E looks poised to be the first of more than a dozen fully electric vehicles that Ford plans on launching by 2022.
Thus, over the course of 2021 and 2022, Ford will be defined by a series of new EV launches. That’s a big deal because EVs are where all the growth in the auto market is these days. It’s also important because the global auto market similarly looks well-positioned to rebound during those years.
Thus, in 2021 and 2022, Ford’s revenues and profits could move meaningfully higher for the first time in a long time.
Ford Stock Will Turn a Corner
The third and final component of the bull thesis on F stock is that its valuation is low enough to enable Ford stock to climb significantly over the next few years.
In anticipation of healthy revenue and profit growth for the first time in a long time in 2021, Ford stock will likely bottom and then move higher in 2020.
That is completely logical. Stocks are forward-looking. They are a reflection of what will happen over the next 12 to 16 months. By the end of 2020, Ford’s 12-16 month outlook should be quite good, due to the global auto sales rebound and its huge EV push.
As a result, by the end of 2020, Ford stock will likely be higher than where it is today.
How much higher? Ford’s average forward price-earnings multiple over the last five years is seven. Analysts’ average 2021 earnings per share estimate for Ford is $1.60. That combination implies a 2020 price target for Ford stock of over $11.
Thus, over the next 12 months, it is fairly likely that Ford stock will climb above $11.
The Bottom Line on F Stock
Ford stock has been depressed for several years. But the shares could start to show some signs of life in 2020, in anticipation of a rally in 2021. That rally will be driven by rebounding global auto sales amid easing trade tensions and easing monetary policy, as well as the launch of several new electric vehicles by Ford.
Given this reality, Ford stock looks attractive in 2020 at prices below $10.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.