Shares of Ford (NYSE:F) sit in an interesting spot. On the one hand, shares are up approximately 73% since F stock plunged to around $4 per share in March. That’s quite a rally. On the other, the stock is still about 37% below its 2020 high of over $9.50 per share. And when you look at the overall picture for the stock, it seems it’s at a tipping point.
On the bullish side, Ford is preparing to launch a new version of its popular, and financially critical, F-150. And it’s also preparing to launch a reimagined version of the Ford Bronco in 2021. As much as investors should rightfully cheer this move, there is reason for caution.
The Pandemic Continues to Change the Economy
In a recent article for InvestorPlace, Larry Sullivan wrote about Ford’s strategy to prioritize its high-margin SUVs and trucks. This was a reasonable strategy on paper. The company has made no secret that its future is in electrification. And it made sense to try to squeeze the most revenue out of this profitable segment while it could.
But a business plan like that often leaves no room for something like the novel coronavirus. As Sullivan astutely points out, consumer behavior is changing. And what’s not clear is if even electric cars will be enough to change consumer habits.
There is a flight from large cities underway. Companies such as Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) have said employees can work remotely into 2021. No, office spaces are not going away. But the idea of the daily commute may be altered in ways that won’t fully shake out for many years. And it’s in this environment in which Ford is launching new vehicles.
A Change at the Top
On Oct. 1, 2020, beleaguered chief executive officer Jim Hackett will retire. He will be replaced by Jim Farley who is coming over from Ford’s New Business and Technology division.
This can either be good or bad news depending on your point of view. In the case of Ford, the consensus among analysts seems to be that Hackett, a veteran of Steelcase (NYSE:SCS), was never a good fit with Ford. Farley appears to correct that flaw. However, Farley is coming with the pressure to deliver on two high-profile launches. And for his part, Farley is promising flawless launches.
Investors love to hear that confidence. However, they care more about knowing a company can deliver on those promises. And in late August, Farley just announced a complex overhaul of the plants that will produce its Ford-150 trucks. The plan will be executed over two phases.
It appears that this is the right move to make. But it will be a drag on production for the automaker just as it is recovering from the shutdowns from the Covid-19 pandemic.
F Stock Is Favored by Robinhood Traders
One of the catalysts for Ford stock since the selloff in March is the popularity of F stock with Robinhood investors. There are times when I’ve been critical of these investors, who tend to be younger and more inexperienced. But in this case, I can see a method to their madness.
Ford did not file for bankruptcy during the Great Recession. There’s the inside baseball of did they or did they not get a bailout. But what sticks in the mind of investors of that age is that Ford didn’t take a bailout. And, Ford has been on the leading edge of the electrification movement.
And I believe either or both of those factors put a halo on F stock. It’s a company, like Tesla, that matches the future that many of these upwardly mobile consumers want to envision.
Ford’s Window Is Closing
It appears that investors are giving Ford every possible opportunity to show what it can do. As is the case with many stocks, analysts are giving companies wide latitude to show that 2021 will be a better year. And that makes Ford a speculative buy at the moment.
However, for Ford and F stock, this means delivering on Farley’s pledge for flawless launches. If the company can successfully bridge the gap between now and 2022 when it will start turning out its electric fleet, investors may be well rewarded. But if they can’t, then it will be difficult to see the company deliver on its promise.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
