The novel coronavirus may have sent Ford (NYSE:F) stock to multiyear lows. But the shares of the legacy automaker have recovered meaningfully since March’s pandemic-driven selloff. After briefly hitting prices below $4 per share in late March, the shares have since rallied to around $6.80.
But after that rebound, is there anything left in the tank? Or will investors soon hit the brakes on F stock? It depends. On the one hand, as seen from the company’s second-quarter results, it performed relatively well in an environment that was challenging to say the least.
And, with the potential for a strong U.S. economic recovery later this year, it’s easy to see the shares heading higher. Ford’s results could continue to be strong as we exit 2020. That potential, however, may already be reflected in the company’s share price.
Over the long-term, F stock can climb a great deal because of its exposure to autonomous and electric-vehicle megatrends. So hold off on buying the shares for now, but consider them a buy on any major pullback.
How F Stock Could Run Out of Gas in the Near-Term
After their partial recovery, what could help push Ford’s shares back to their pre-pandemic levels?
An improved macro environment could do the trick. If we end up having a viable coronavirus vaccine by the end of the year, it’s easy to see the recovery of this cyclical name, which is dependent on a healthy U.S. economy, accelerate.
Also, as InvestorPlace columnist Faizan Farooque wrote in his Aug 10 column, strong demand for the new Ford Bronco could help move the needle. However, in the same article, Farooque pointed out why it’s not all blue skies ahead for the automaker.
Granted, many of the concerns he cited are long-term issues. For example, he noted that millennials and Generation Z tend to be less interested in automobiles than older generations. While that doesn’t bode well for Ford’s longer-term outlook, it probably won’t hurt its stock anytime soon.
But any indication that the automaker’s recovery will take longer than expected will derail the rally of F stock.
Back in March, investors’ expectations for the company were low. But due to Ford’s better-than-expected Q2 results and excitement over the Bronco, the shares may have gotten ahead of themselves. As a result, buying the shares today may not be the best move. But any major pullback by the stock would create a strong long-term opportunity.
The Long-Term Outlook of F Stock Remains Positive
Interest in Ford’s stock may fade in the near-term. But the long-term bull case for the shares remains strong, especially if they drop to their prior levels.
Ford may look like a dinosaur in the age of Tesla (NASDAQ:TSLA). As autonomous and/or electric cars become much more widespread, the older automakers may get left in the dust.
This bearish forecast may represent the views of many investors. But Ford’s no slouch when it comes to new automotive megatrends. The company is very active in autonomous vehicles (AVs), as it has a large stake in self-driving startup Argo AI. Ford has already realized billions of profits from this investment, after selling part of its stake in Argo to Volkswagen (OTCMKTS:VWAGY).
But, with its current 40% stake, Ford continues to have heavy exposure to the AV megatrend. When it comes to electric cars, Ford is also making the right moves. With models like the Mustang Mach-E, it could soon be giving Tesla a run for its money.
In short, the company’s AV and EV exposure shows it’s not fair to say that Ford is falling behind when it comes to innovation. Interestingly enough, it may be the company’s own shareholders who are stifling its pivot to the future.
That’s why the Wall Street Journal’s John D. Stoll recently wrote that the Ford family should take its namesake company private. By partnering with private-equity firms to buy out public shareholders, the company will no longer have to sacrifice modernization in order to meet shareholders’ demands for dividends and take into account their short-term outlook.
Granted, the company probably won’t go private, so buying F stock in order to bet on such a transaction is not a good reason on its own to buy the shares. Bu the Ford family may wind up taking that route.
Hold Off for Now, But Wait for a Pullback
There are many reasons to be bullish on Ford for the long haul. Between the anticipated post-pandemic recovery and the company’s proactive moves in autonomous and electric vehicles, this legacy Detroit automaker is far from being a dinosaur.
Yet after F stock rallied 75% in a matter of months, it may pay to hold off on buying the shares for now. But on any major pullback, consider the shares a screaming buy.
Thomas Niel, a contributor to InvestorPlace, has written single-stock analysis columns since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.
