Ford Motors (NYSE:F) has been a losing bet for a long time. F stock has been on a pretty steady downslope for the last several years.
The legacy U.S. automobile manufacturer has seen the electrification wave disrupt global auto demand and cause the company’s signature diesel cars to lose popularity. Meanwhile, profit margins have been squeezed by increasing competition. And, to make matters worse, the Covid-19 pandemic entirely killed automobile demand in the first half of 2020.
Net net, Ford’s revenues and profits haven’t gone anywhere in a long time. As a result, F stock has shed about 40% over the past decade, while the S&P 500 has risen 235%.
But there’s reason to believe this downtrend is gearing up to reverse course, and that F stock could drive all the way to levels above $10. Here’s why.
Covid-19 and F Stock
The Covid-19 pandemic slapped the world economy in the face in early 2020, and the entire automobile market fell off a cliff.
Since then, we’ve recovered, and we have figured out a way to sustain quasi-normal economic and social behavior while keeping the virus at bay, by moving operations outside, wearing masks and maintaining social distancing.
As a result, the world economy is recovering. So is the automobile market.
China has now rattled off four straight months of automobile market gains. Europe’s automobile market has been in rebound mode since April. Same with the U.S. automobile market.
This rebound will persist, mostly because rates around the world are at record low levels and because central banks are almost unanimously saying that they are committed to keeping rates lower for longer. This will juice consumer spending, especially on big ticket items like cars, with the implication being that 2021 and 2022 could be really big years for global auto sales.
Of course, this is a good thing for F stock.
Electrification Wave Starting in Late 2020
One of the reasons that Ford’s sales have struggled for the past several years is that the company’s automobile portfolio was antiquated. That is, it wasn’t electric and therefore didn’t line-up with rising demand.
That’s all going to change starting in late 2020, when Ford will kick-off a massive electrification wave across its vehicle portfolio.
The Mustang Mach-E will start its roll-out in late 2020, before an official performance version launch in early 2021. Thereafter, also in 2021, Ford will launch a Hybrid F-150 pick-up truck. Then, in 2022, Ford plans to launch a fully electric F-150 pick-up truck.
This electrification wave will modernize Ford’s vehicle portfolio, thereby matching the company’s supply with current demand trends. In doing so, Ford will spark demand growth at favorable price points.
Revenues will head higher. So will gross margins and profits, as well as F stock.
Cost Cutting Will Drive Margins Higher
Ford is hyper-focused on slimming its operating model and streamlining investments into only its most profitable segments, like light duty trucks and electric vehicles.
In so doing, Ford is taking unnecessary costs out of a business model that got far too big for its own good. Thus, this downsizing likely won’t meaningfully dampen demand. Instead, it’s just removing unnecessary fat that doesn’t drive profits. It will result in a lower operating expense base without showing up on the revenue line.
Bigger revenues on lower expenses equal much better margins.
To that end, Ford’s profit margins should materially improve over the next few years, helping spark a sharp reversal in Ford’s profit growth trends and F stock.
Bottom Line on F Stock
Ford stock has been a big loser on Wall Street for several years.
But the company’s fundamental growth trends are going to reverse course sharply over the next 12 to 36 months, thanks to low rates, vehicle portfolio electrification and cost cuts.
This growth trend reversal will spark huge gains in F stock, because shares are simply dirt-cheap at just 0.2-times trailing sales.
My numbers indicate this stock could rebound back to $10.
As such, I say buy the dip here, and hold for the next 12+ months.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not own a position in any of the aforementioned securities.
