A former colleague of mine recently stated on LinkedIn that people have an “obsession” with data sets that show things will get better. I disagree with the premise. I think the evidence clearly shows that people’s biggest bias is believing that things will stay the same. (The latter bias largely explains, for example, why stocks reached such low levels during the 2008 crash and why the stock market reached such high levels at the beginning of this year).
That “things will stay the same” bias is probably the biggest reason why Ford (NYSE:F) stock and many other equities are now trading at bargain-basement valuations; specifically, most of The Street believes that the coronavirus from China will keep our economy under wraps for the foreseeable future.
But as I have explained in the past, I expect the impact of the coronavirus to ease in the U.S. within a couple of weeks. That easing, of course, will greatly help many companies, including Ford.
As I’ve stated previously, I expect warm weather and drugs to play a role in eradicating the outbreak. Moreover, I see growing evidence that many Americans believe that, in most parts of the country, the virus probably does not justify the draconian measures that have been taken. Multiple places, from much of Oklahoma to Japan and South Korea, have not closed most of their social venues and places of business. And the fact is that, in those places, although all deaths are tragic, the virus is not causing widespread overcrowding of hospitals or killing thousands or even hundreds of people.
President Donald Trump, who indicated that he will try to restart the economy soon, seems to believe that taking such a step will not unleash total disaster. (Lots of testing, as South Korea has done, and quarantining vulnerable people, as Israeli Defense Minister Naftali Brennett recommends, are probably the best alternatives.)
Ford Is Priced for a Continuation of the Status Quo
I think that F stock is priced as though the status quo will continue in the U.S. and China for some time. The shares have lost a huge 54% of their value so far in 2020, and their price-to-sales ratio is an incredibly low 0.14.
But the status quo is not continuing. In China, the economy is starting to show more and more signs of recovery. Meanwhile, the weather is getting warmer in the U.S. and China, and drugs are being deployed on a massive scale for the first time in the U.S. Further, many more Americans, including the president and at least two medical doctors, doubt the necessity of the nearly all-encompassing closures. Given all of these trends, the economies in the U.S. and China are likely to become much more normal soon, lifting Ford’s sales and F stock.
On another positive note, Ford has a great deal of cash. Specifically, the automaker has more than $37 billion of cash on hand, so it will not go bankrupt anytime soon.
GM Stock Is a Better Bet Than Ford at This Point
Before the coronavirus outbreak, Ford was already struggling, to a certain extent. Its net income from its automotive business fell $426 million year-over-year in 2018. Conversely, the combined net income of General Motors’ (NYSE:GM) North America and international units rose about $43 billion year over year. GM is also in a much stronger position in China than its fellow North American competitor, as it sold over 3 million vehicles there in 2019, versus just 146,000 for Ford. And GM is further along in autonomous vehicles, while its Bolt is one of the America’s best-selling electric vehicles, giving GM an advantage over Ford in that category.
The Bottom Line on F Stock
Ford’s shares are likely to rise over the next few months, as the coronavirus crisis subsides. Nevertheless, GM, which performed better in 2019 and has important advantages in China, EVs and autonomous technology, looks like the better bet at this point.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not hold a position in any of the aforementioned securities.
