The novel coronavirus has battered many industrial companies. Ford (NYSE:F) is no exception. F stock hit its lowest level since 2009 back in March, as made sense when it seemed like the nation might be slipping into another financial crisis. Since then, however, the stock market has roared back.
And, in fact, Ford’s peers in the electric vehicle space have become some the hottest stocks in the market. Yet Ford continues to lag behind.
There’s a broader sense of malaise for traditional industrial companies as well. Just look at the Dow Jones Industrial Average, for example. Its managers just decided to boot out three long-running members of the index — venerable respected names — so the likes of Salesforce.com (NYSE:CRM) could enter the index instead. I’m not here to knock Salesforce. But it says something when a so-called industrials gauge is racing to add software companies trading at 107x P/E ratios to its constituents list. Real manufacturing companies are out of favor, and Ford certainly is among the cast-offs.
How Challenged is F Stock?
F stock has been in an extended downtrend for years now. Back in 2016, Ford shares traded for $15 a piece. By the end of 2019, they had slid to $10. This year, of course, accelerated the decline; shares bottomed out at just $4 each during the crash. The stock is back up to $7 now, which is a bit of an improvement, but it’s still a more than 50% decline in recent years at the same time that the stock market has soared.
Some of this the blame falls on macroeconomic factors. U.S. vehicle sales hit a new record in 2015, and advanced again slightly in 2016, but have stalled out since then. From the 2016 peak, sales dropped by 500,000 units to 17.0 million last year. It’s probably not a coincidence that Ford stock has fallen steadily over that same stretch. With hindsight, it seems the auto market — driven by incentives and cheap credit — got a bit overheated a few years ago and the industry paid the price in recent years.
However, Ford has to shoulder some responsibility, as its slide has been worse than the industry as a whole. Fortunately, for shareholders, change is coming. In August, Ford announced that CEO Jim Hackett, will retire in October. The car maker’s now-COO, Jim Farley, will take over at that point. Farley will have the chance to steer Ford in a new direction, particularly as the company has a number of promising vehicle launches including several Bronco models over the next year.
Short-Term Looks Rocky, but That Could Change
At present, it might seem like there’s no clear reason to buy into Ford stock. The company suspended its dividend earlier this year, removing what was formerly a large yield. That punished the folks who owned F stock for income, and made it much less appealing to wait while Ford turns itself around.
The new CEO is a plus, but it will probably be a few months until we see anything significant from new leadership that could move the stock. And meanwhile, the economy is still a mess. Who’s thinking about buying new cars now?
That’s actually the interesting part here, where the consensus could be wrong. Most analysts assumed the housing market would be dead this spring as the unemployment rate soared and the economy shut down. Instead, housing has absolutely roared back, and many housing sector stocks are now hitting new all-time highs.
The economy has held up better than could have been reasonably expected, all else equal. The government’s first wave of coronavirus relief put a ton of cash in people’s hands. If another big round of aid arrives — as seems fairly likely — it could lead to a big upturn in the auto market as well.
F Stock Verdict
Right now, Ford is the precise opposite of what a hot stock looks like. F stock has been in a slump for years. The company is dominant in its market, yet has struggled to generate consistent operational traction recently. And investors, rightly or wrongly, view it as an outmoded vehicle company as opposed to newer tech-driven companies within the auto industry, such as Tesla (NASDAQ:TSLA) or Nio (NYSE:NIO).
Still, though, there’s a good chance that perceptions will turn around. Generally, whenever the market gets into a technology craze — such as in the late 1960s and late 1990s — it soon passes. Eventually the likes of Tesla, Nio, and the other EV makers will have to turn a profit and start paying dividends to please their shareholders. If they don’t, their share prices will deflate in due time.
Meanwhile Ford still has a tremendous base. It has a worldwide range of factories and employees. Its brands are known across all generations of people. And even its technological prowess is significantly higher than folks give it credit for. While it’s far from a sure thing that Ford will be able to mount a comeback, don’t count out the company yet either.
While I don’t own a position in either stock, I’d rather own Ford than Tesla if I had to pick one. Valuations do matter, and Ford is priced right for the opportunistic investor.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
