Writing about Ford (NYSE:F) hasn’t been easy in recent years. The coronavirus is the latest issue to plague F stock. Down almost 23% (including dividends) in the past month through March 4, one of America’s big three is trading at levels not seen since 2009.
I’ve been both positive and negative about Ford over the past couple of years. It seems as though no matter what InvestorPlace contributors write about Ford, the automaker’s market capitalization continues to slide.
I’ve been asked to discuss Ford on this day. I was looking back at some of my commentary over the past two years. Frankly, I’m at a loss as to how I feel about the company.
This makes me consider whether Ford stock is a hopeless cause.
Is F Stock Still the Best Buy Under $10?
In December 2018, I wondered if Ford was the best stock to buy trading under $10. At the time, there were 28 stocks with market caps higher than $10 billion trading in single digits, including Ford. Interestingly, despite the coronavirus correction, there are only 33 stocks (with a market cap over $10 billion) trading under $10 out of 715, according to Finviz.com.
I think Neil Macneale, who has published the successful 2 for 1 Newsletter since 1996, has a good idea why there aren’t more stocks trading under $10 at the moment.
The answer? Companies don’t split their stocks anymore.
MarketWatch contributor Mark Hulbert recently discussed why stock splits have dried up, suggesting that this phenomenon is terrible for the markets. Unfortunately, it’s not ideal for Macneale, either, because it means he’s got fewer stocks to choose from each month.
“In 1997, 102 companies in the S&P 500 split their shares, according to an analysis conducted by Charles Schwab. In calendar 2018, in contrast, only five companies did, according to FactSet,” Hulbert wrote Oct. 12, 2019. He continued:
This big of a drop might make sense if we were in the throes of a severe bear market. But we’re not, On the contrary, we’re 10 years into the longest bull market in U.S. history, according to some historians. And there are more high-priced stocks than ever.
It would be interesting to discuss this subject with portfolio manager Joel Tillinghast, who runs the Fidelity Low-Priced Stock Fund (MUTF:FLPSX), and has since December 1989. His fund has a $35 price ceiling. That increases the number of stocks with a $10 billion market cap to choose to 156 or five times as many at $10 or less.
That’s a vast difference when pulling together an entire portfolio. Ford doesn’t make the fund’s top 25. But I digress.
The Bottom Line on F Stock
The point is not much has changed since I wrote about Ford in December 2018. The same cast of characters makes up the current group of 33 stocks trading under $10, except that Ford’s yield’s increased by 140 basis points to 8.7%.
If you’re an income investor, that might be good news.
However, a lot has changed in the 14 months since then. Most importantly, demand in the U.S. and China has weakened significantly. With $14 trillion in U.S. household debt — a record level according to the New York Federal Reserve — higher than where it stood before the 2008 recession, it’s not going to be easy for Ford to grow.
Sure, Ford can cut costs, but that’s not going to bring back customers.
This past December, I discussed how Ford planned to offer stripped-down vehicles as a way to keep the manufacturer’s suggested retail price (MSRP) low, and then sell as many options as possible to rev up profits.
Frankly, I thought it was a terrible idea, suggesting it was a sleight-of-hand trick to pull consumers into the showrooms. It’s bound to fail.
As I’ve said in the past, Ford’s best bet is with electric vehicles. Long-term, I like Ford stock. Compared to the other 32 names under $10, it remains one of, if not the best bet to make money over the long haul.
But you’ve got to be patient. You’re not going to be rewarded, except for the dividend, in the next 12-18 months. And that’s okay.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.