The investment approach for buying stock of the Ford Motor Company (NYSE:F) can be summed up in one word: “patience.”
As any shareholder of the automotive company can attest, F stock is an investment that requires a long time horizon. While Ford has been in turnaround mode for seemingly ever now, the iconic car maker’s share price has been stuck at $10 or less for the better part of three years. The share price hasn’t been able to stay above $7 a share since the Covid-19 pandemic sent global stock markets crashing down in March. Hopes for a breakout seem to have faded and current shareholders appear to be playing the long game while growth oriented investors have abandoned the stock altogether.
Things were bad at Ford before Covid-19 forced it to halt production at its manufacturing plants around the world this past spring. U.S. factories were shutdown for more than seven weeks in the second quarter. Since then, the situation at the blue oval has further deteriorated, with the company providing guidance of a full-year loss for 2020, and it currently carries a junk rated balance sheet. Ford’s second-quarter revenue was down 50% from a year earlier to $19.37 billion.
The company reported a $1.12 billion second-quarter net profit, but that was the result of a $3.5 billion gain on the value of its stake in the Argo AI autonomous vehicle company. Without that one-time gain, the company would have lost $1.9 billion, or a 35 cents per share. Ford burned through $4.9 billion in cash in the first half of this year.
More Pain Ahead – Second Half of 2020
The company has to undertake a costly changeover at its Dearborn, Michigan and Kansas City, Missouri production plants so that it can manufacture next-generation F-150 pick-up trucks, which provide the bulk of Ford’s profits. The company has announced plans to pause production for two weeks in September and another two weeks in October to complete the changeover process at each plant.
Ford has said it will likely lose about 100,000 units of F-150 production this fall at a cost of as much as $1 billion. While the Detroit, Michigan-based company will likely recover, it’s not going to make the situation any easier for Ford in the near-term.
The Big Turnaround
Ford is betting on its resurrection of the Bronco sport utility vehicle (SUV) – the new F-150 pick-up truck, and an all-electric Mustang SUV (known as the ‘Mustang Mach-E’) to resurrect its fortunes.
Early indications are promising for these new vehicles. The new Bronco’s pre-orders have surpassed 150,000 and the Mach-E has been sold out for months.
The impact of sales from the new F-150, Bronco and Mustang Mach-E are not likely to be felt until the second half of 2021 and into 2022. This means that, despite reason for optimism, the turnaround at Ford will require more patience on the part of investors.
Management changes also figure prominently in Ford’s turnaround efforts. In February of this year, the company shuffled several senior executives around internally, and in July, Chief Executive Officer Jim Hackett announced that he is retiring from the company this October after three years at the helm. Hackett has said in media interviews that he sees the “rebirth of the Bronco” as his last act at Ford.
Hackett is being succeeded by James Farley, who was named Ford’s Chief Operating Officer in the February management shake-up. Farley has promised to kick Ford’s turnaround into high gear.
It remains to be seen if he’ll be the CEO to finally get F stock the long awaited bounce that shareholders have been waiting for.