The worst appears to over at Ford Motor Co. (NYSE:F) and now may be the time for F stock holders and prospective investors to turn bullish on the iconic American automaker.
It’s been a difficult few years for Ford and its shareholders. Before the Covid-19 pandemic shutdown manufacturing, the Dearborn, Michigan-based company was struggling. Mainly with a global transition to move away from sedans to focus on trucks and sport utility vehicles (SUVs). That meant retiring popular nameplates such as the Taurus and Fiesta – moves that hurt sales.
Development of electric vehicles has also proved to be rocky at Ford. At the end of April, Ford canceled plans to make electric vehicles under its luxury Lincoln brand. A partnership struck with Rivian, a Michigan-based electric vehicle maker.
The turmoil had caused Ford’s stock price to steadily slide. Ford dropped from its perch of $10.56 last summer to $6.96 in February, as U.S. markets hit all-time highs. And that was before the coronavirus brought worldwide automotive production to a standstill.
The Case for Buying F Stock
Ford reported a first quarter loss of $2 billion. This was its first quarterly earnings net loss since the 2009 Great Recession. Its per-share loss of 23 cents compared to a loss of 6 cents forecast by analysts. In response, the vehicle maker is cutting spending wherever possible, slashing its global marketing and advertising budgets.
But the big shock came with the company’s revised second-quarter guidance. Ford said it expects to lose upward of $5 billion on an operating basis for the quarter ending June 30. The $5 billion loss projection is twice as large as what analysts had been expecting. Ford shares slumped further and are now down about 48% year-to- date. The stock is currently trading at $4.80 per share, as of this writing.
So why turn bullish on Ford now? Because recent news and indicators suggest that the worst is over for the blue oval and shares have likely hit bottom. Long-term investors would be wise to capitalize on what is shaping up to be an American comeback story.
First, and most importantly, Ford and other automakers such as General Motors and Fiat Chrysler have reached agreement with Michigan Governor Gretchen Whitmer and the United Auto Workers (UAW) union to restart production on May 18. That’s the best news possible for the originator of the famed Model-T.
Yet even if production were to be delayed beyond May 18, Tim Stone, the company’s Chief Financial Officer, recently told the media that Ford has enough money to operate “through the end of the year.” Ford finished the first quarter with $34 billion in cash and $35 billion in liquidity. At the start of 2019, Ford had $24 billion in cash and $35 billion in liquidity.
Ford Is on an Upswing
Also positive for the automaker is its 2021 lineup of new vehicles that are expected to land in showrooms this fall. Leading the way is a redesign of the F-150 that aims to move the pick-up truck from a workhorse into more of a luxury vehicle with a newly redesigned interior cabin. Despite Ford’s problems in recent years, the F-150 remains not only the bestselling pick-up truck but the bestselling vehicle in both the U.S. and Canada – a title it has held since 1981. The company also retains its legendary Mustang muscle car and there continues to be tremendous brand recognition and customer loyalty to the Ford Motor Co.
As if to punctuate the fact that Ford is now on an upswing, Ford’s Chief Operating Officer Jim Farley, recently paid just over $1 million to buy 194,950 shares of Ford stock at an average price of $5.13 per share. Farley now owns a total of 828,922 Ford shares.
A Ford spokesman told the Detroit Free Press newspaper on May 4 that, “Aside from Bill Ford, this is the largest open-market share purchase by a Ford executive in at least the past 10 years.” The purchase is also noteworthy because Farley’s base salary in 2019 was $1.1 million, meaning he invested almost all of his compensation into company stock. Retail investors may want to also invest while share prices remain near historic lows.
Bottom Line on Ford Stock
To be sure, Ford faces much of the same uncertainty and hurdles as most businesses operating under the threat of a global pandemic. And the company continues to have identity problems outside North America – especially in Europe where consumers tend to favor small cars over large pick-up trucks.
Nevertheless, the consensus rating of Wall Street analysts suggests there is upside potential in Ford stock at current levels. Among 15 Wall Street analysts that have revised price targets on Ford, the average 12-month price target is $7.73, suggesting a potential gain of 56%. The high price target on the stock is $12 per share and the low-price target is near current levels at $4.30. The consensus rating is currently “hold,” though there are four “buy” ratings on the stock.
With production set to resume under strict health and safety guidelines and gathering tailwinds, investors looking for gains over the long-term may want to invest in Ford, the original automotive company that has withstood many ups and downs since it was founded by Henry Ford in 1903.
As of this writing, Joel Baglole did not hold a position in any of the aforementioned securities.
