I hate American cars. For years, I’ve enraged fans of Detroit muscle, leading to many colorful emails and social media posts. However, a conversation with a knowledgeable investor changed my mind, at least from a business perspective. So while I probably won’t be caught dead in an American car, I’m now a big supporter of Ford (NYSE:F). I even went so far as to buy F stock.
Yes, you read that correctly. Though I question the workmanship of Ford – which stands for fixed or repaired daily, among other things – I sincerely believe that F stock is a long-term opportunity. Indeed, with Tesla (NASDAQ:TSLA) shooting to one plateau after another, the electric vehicle maker is begging for a competitor to burst its bubble. That company is the one that started it all, Ford.
Before we get into that, let’s talk earnings. For the iconic automaker’s – my automaker’s – second quarter of 2020 results, scheduled to be released on July 30, analysts expect a consensus earnings-per-share target of negative $1.21. This is slightly on the favorable end of a range between negative $1.50 and a loss of 98 cents.
In the year-ago quarter, Ford delivered an EPS of 28 cents, missing the consensus expectation of 31 cents. Still, the company will obviously take that than what lies ahead.
On the revenue front, analysts forecast $19.9 billion. Individual estimates range between $16.5 billion to $26.7 billion. In Q2 2019, Ford generated $38.9 billion, beating the consensus calling for $38.6 billion.
Of course, the comparables against last year are terrible. Therefore, I don’t expect the actual numbers to make much of a scene for F stock. Instead, it’s all about the Mustang.
An Automotive Icon Will Electrify F Stock
Prior to the pandemic, I had difficulty imagining a mass-scale transition to EVs. While the technology has improved dramatically, the lack of broader infrastructure bothered me. Actually, this is still a risk factor, among many others.
But when the novel coronavirus disrupted everything, I received some much-needed clarity. At the time, I found myself needing an oil change for my car. But the lockdowns made that impractical for me. However, if I had an EV, I wouldn’t have to worry about that.
Admittedly, not needing to perform a maintenance task is no reason to switch platforms altogether. However, other concerns came to mind. When the oil price war between Saudi Arabia and Russia drove the price of crude to below zero, it made us all realize that we didn’t really have true energy independence; our key commodities were still beholden to foreign powers.
Also, the coronavirus changed how we work. And with that single but paradigm-altering transition, “range anxiety” for EVs evaporated: we just weren’t driving all that much anymore.
Therefore, Ford’s all-new, all-electric Mustang Mach-E is arriving at just the right time. First, Tesla more than proved the concept worthy and practical. Second, the coronavirus has ushered in a new normal that I believe favors EVs longer term. Put the two together and you have a compelling case for F stock.
Further, the base model Mach-E is attractively priced at under $44,000. It offers an excellent alternative to Tesla’s Model Y, which starts at $45,690 at time of writing. Also, the performance trim Mach-E GT is only $4,800 more than the Model Y Performance. But from my eyes, the GT is far more muscular and attractive.
Ford Is All Business
If you scour automotive blogs, the recurring comment among enthusiasts is that they hands-down love the Ford Mustang Mach-E. They just wish Ford would drop the Mustang name.
Believe me, I get it. Before I switched to Mercedes-Benz’s AMG brand, I was all about Japanese imports. Admittedly, while I had the quality and reliability to boast about, I would often get smoked at the streetlights – I mean, at a legally sanctioned track event – while some cowboy yee-hawed his beer belly to the finish line.
That’s the appeal of the Mustang and other piece-o-junk American cars. Go fast in a straight line and not much else. And make a ruckus while you’re at it.
That’s so awesome. But like the Confederate flag, American muscle cars are going out of style. Primarily, this is because the people that love Detroit muscle are dying off. In all honesty, Ford is making a brilliant move here, which is why I’m buying F stock as opposed to shares of General Motors (NYSE:GM).
Most importantly, the numbers back up Ford’s genius strategy. From the late 1970s to 2019, the Mustang has gone through four design/generation cycles. As you can see, the Mustang has evolved from really trashy to somewhat trashy.
However, peak demand for these pony cars occurred between the 1980s to the back half of the 2000s. Starting from 2008 onwards, the average annual unit sales dropped 41% from levels seen between 1981 through 2007.
Put another way, the traditional Mustang – a two-door coupe – is no longer relevant. And there’s no point for Ford to appease a declining user base. Management made a tough decision.
Just like I did when I swallowed my pride and bought F stock.
Wait Out Any Turbulence
Contrary to the Trump administration, I’m not living in an alternate reality. I fully understand that Tesla owns the EV space. Further, all the Robinhood investors will continue driving up TSLA until it loses charge.
Therefore, I fully expect turbulence in F stock. But I believe this is an opportunity to acquire shares at discounted rates. Moving forward, I believe Ford has greater credibility to mainstream EVs.
As well, the Mustang Mach-E is a compelling counterargument to Tesla EVs, which if I’m being honest are starting to look the same. Ford is a pure automaker and it knows success isn’t just about implementing advanced technologies. Rather, the most sought-after cars have character that is difficult to explain yet is quantifiable through rising sales.
Granted, it is a risk like anything. But I see tremendous opportunity in this American car company, even though I still hate American cars.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he is long F stock.