Ford’s (NYSE:F) business is starting to boom now, and the automaker looks poised to perform even better in the future. Meanwhile, Ford stock is well-positioned to benefit from a hot initial public offering (IPO).
In a column published in July 2020, I predicted that U.S. automobile sales would jump as many consumers avoided mass transit due to the novel coronavirus and moved from the cities to suburbia to escape school closures and crime—and to exploit the work-from-home trend.
I also noted that very strong demand for homes showed, despite the pandemic, millions of Americans were ready, willing and able to make large purchases. This boded well for auto sales. Finally, I cited upbeat “micro trends” for Ford, including positive reviews of its new F-150 truck and its electric Mustang Mach-E SUV.
A little over a year later, the positive macro and micro trends that I mentioned are clearly helping F stock. Given all these points, I continue to recommend that investors buy Ford shares.
The Boom Is Beginning for F Stock
On Oct. 27, Ford’s third-quarter earnings per share, excluding certain items, came in at 51 cents, versus analysts’ average outlook of just 27 cents. Its automotive revenue was $33.2 billion, well above the mean estimate of $32.54 billion. Additionally, the company increased its “full-year adjusted earnings guidance” to $10.5 billion-$11.5 billion, versus $9 billion-$10 billion previously.
Moreover, last month, the automaker’s retail SUV unit sales came in at the highest level of any October since 2000. And the unit sales of its electric vehicles soared 195% year-over-year. Finally, the unit sales of its retail pickup trucks jumped 25% month-over-month. Overall revenue increased 12.3% in October versus September.
Two negative notes: the automaker’s Q3 auto revenue dropped 5% YOY. And its total vehicle sales fell nearly 4% in October YOY.
The declines were likely caused by two factors: a difficult comparison versus a year ago (when economies in many parts of the country were just reopening) and the chip shortage.
But Ford’s strong month-over-month sales increases and its guidance hike indicate that both those challenges are easing, while its positive catalysts remain powerful. Consequently, I believe that it is quickly overcoming its negative catalysts
Ford’s Future Looks Very Bright
The company is taking multiple steps to position it very well over the longer term. For example, on the automaker’s Q3 earnings call last month, CEO Jim Farley, reported that, “by 2028,” 33 million of Ford’s vehicles would be able to receive “over-the-air updates,” versus just 1 million today.
Meanwhile, Ford intends to produce enough of its own batteries to power 1 million+ EVs by 2025. By manufacturing so many of its own batteries, the company should be able to lower its battery costs, allowing it to meaningfully reduce the prices of its EVs while raising their margins.
What’s more, the high demand for and the upbeat reviews of the Mach-E strongly indicates that Ford has developed top-notch EV designing and manufacturing capabilities.
On the autonomy front, the automaker’s subsidiary, Argo AI, signed a deal in Q2 to partner with Lyft (NASDAQ:LYFT) on self-driving vehicles and will provide “autonomous delivery services” to Walmart (NYSE:WMT) in multiple cities, Farley reported.
And Ford should benefit a great deal from an EV tax credit that looks poised to pass Congress. The legislation will likely give Ford and General Motors (NYSE:GM) a meaningful advantage over most foreign automakers.
This would mean a special tax credit of $2,500-$4,500 for EVs made by unionized workers in the U.S. Much of the workforces of GM and Ford are unionized, while the employees of most foreign automakers in the U.S. are not unionized.
Finally, F stock can get a big lift from the automaker’s likely sale of in-vehicle apps, which is likely to be very lucrative in the coming years.
A Big IPO Catalyst
Ford reportedly owns a 12% stake in EV startup Rivian, which has received a massive order of 100,000 delivery vehicles from Amazon (NASDAQ:AMZN). Many are seeing Rivian as “the next Tesla (NASDAQ:TSLA).” And some major investors are buying F stock because they see the latter’s shares as a safe way to benefit from Rivian’s IPO.
The Bottom Line on F Stock
F stock has many powerful, positive catalysts in the near term and the longer term, yet their forward price-earnings ratio is only 9.5, according to Yahoo Finance.
On the date of publication, Larry Ramer holds a long position in Rivian.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Roku, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.
