Ford’s (NYSE:F) strong second-quarter sales data and the impressive performance of the housing sector bode well for Ford’s Q2 results and its Q3 guidance, which are due to be reported on July 30. Over the longer term, Ford stock should be boosted by several factors, including the flight of millions of Americans from cities to the suburbs and the launch of two new vehicles by the U.S. automaker.
Ford’s U.S. Sales Data and Strong Home Sales Are Promising
The number of vehicles that Ford sold to retail customers in the U.S. fell only 14% year-over-year in Q2. Retail sales, i.e. sales to consumers tend to have higher margins than fleet sales. Further, the sales of the company’s high-margin truck sales inched down just 0.4% YOY, while the automaker’s sales of SUV, which also tend to carry higher margins than cars, fell just 22% YOY despite the pandemic. Incredibly, sales of the company’s Ford Explorer truck jumped 12.4% YOY in Q2, while the sales of its F-Series pickup trucks inched down only 2% YOY. Finally, Ford reported that its share of the U.S. retail- auto market had increased a full percentage point to 13.3%.
Meanwhile, in June sales of existing homes soared a record 21% month-over-month in June, compared with May.
“The sales recovery is strong, as buyers were eager to purchase homes and properties that they had been eyeing during the shutdown,” Lawrence Yun, the chief economist of the National Association of Retailers said, “This revitalization looks to be sustainable for many months ahead as long as mortgage rates remain low and job gains continue.”
The strong rebound of existing home sales indicates that, despite the novel coronavirus pandemic and the recession, a high percentage of Americans are willing and able to make large purchases. Exceptionally low interest rates, along with reduced fears of the coronavirus among healthy Americans under the age of 50.
Further, as I’ve pointed out in the past, many of the highest-paying sectors, including finance, tech and healthcare, have lost little or no momentum during the pandemic. As a result, a vast number of Americans still have the financial resources needed to buy new homes, and more importantly for Ford stock, new cars. That trend bodes very well for Ford’s Q2 results and its Q3 guidance.
Also likely to help Ford’s Q3 guidance is that Europe and China, where the company also sells vehicles, do not appear to be greatly affected by the pandemic at this point.
Finally, as I’ve pointed out in the past, aversion to mass transit amid the a pandemic is likely to be positive for Ford and Ford stock.
Longer-Term Positive Catalysts for Ford
Multiple news reports indicate that, driven by the coronavirus pandemic, the violence in U.S. cities, the closure of schools in cities, and the work-from-home trend, many Americans are looking to move from cities to the suburbs. Since those who live in suburbs tend to drive more than city dwellers and are much more likely to buy SUVs and trucks, the exodus from cities should be positive for Ford in the longer-term.
Although the work-from-home trend will somewhat offset Ford’s gains from the reduced popularity of cities, I think the automaker’s overall position will improve from the recent changes in the U.S. As I’ve stated previously, I expect many more people to work from home than before the pandemic, but I anticipate that millions of people will return to working in offices after the pandemic is over.
Finally, two of Ford’s upcoming vehicles have strong potential. Specifically, multiple were upbeat about the new version of the Ford F-150, while the electric version of the Ford Mustang could successfully fill an important, potentially highly lucrative niche.
CarandDriver stated that “upscale models” of the F-150 would “impress the in-laws” and added that “We expect some of these half-ton trucks will boast a maximum towing capacity of at least 13,000 pounds.” A Seeking Alpha columnist wrote that “an early verdict of the 2021 Ford F-150 is extremely positive,” while “I found the exterior design extremely compelling, essentially flawless.”He added that “the laptop table, the 180-degree folding seats, and the onboard generator with significant power out-take… will be major selling points.”
Finally, the Ford Mustang Mache E, due to be released this fall, could easily become an extremely popular electric sports car for upper-middle-class drivers. The vehicle utilizes seven axial flux motors which reportedly enable it “to operate as a front-, rear- or all-wheel-drive car with a maximum output of 1,400 horsepower.” According to the race-car driver who helped design the Mach E, ” it accelerates like a magnetic roller coaster,” Fox News reported. And, incredibly, it can be “recharged in 45 minutes,” the website stated.
Unlike Tesla’s (NASDAQ:TSLA) sports car, the Roadster, which has a base price of $200,000, the Mach E, with a base price of $40,000, will be affordable for many upper-middle-class people.
The Bottom Line on Ford Stock
Ford’s relatively strong Q2 U.S. sales data indicate that it will likely report favorable Q2 results, while its Q3 guidance and its longer-term performance should be boosted by favorable macro trends. With a low forward price-earnings ratio of just 6.5 times and a couple of great-looking new Ford vehicles on the way, Ford’s shares are worth buying 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 Roku, oil stocks and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not own shares of any of the aforementioned companies.