Investors in auto giant Ford Motor (NYSE:F) have seen triple-digit returns in 2021. Year-to-date, F stock has returned over 131.5%. By comparison, the Dow Jones U.S. Automobiles index is up by 52%.
The stock price hit a multi-year high of $21.46 a share on Dec. 10 and closed last week just pennies below $20. The stock’s 52-week range is $8.43 – $21.49, and the market capitalization stands at $79 billion.
Ford has been allocating more resources into the electric vehicle (EV) space, a move that has been paying off well for shareholders. Meanwhile, the automaker has also invested, along with Amazon (NASDAQ:AMZN), in Rivian Automotive (NASDAQ:RIVN), the EV manufacturer that went public in November. Ford owns over 10% of Rivian while Amazon holds 20%. Rivian last week announced a new $5 billion electric vehicle factory just outside of Atlanta, Georgia. Once ramped up following its 2024 opening, the facility will be capable of producing up to 400,000 vehicles per year.
In 2019, the global EV market was around $160 billion. Analysts expect the number to top $800 billion by 2027, showing a compound annual growth rate (CAGR) of over 22.55%. Therefore, we’re likely to hear more about Ford as well as its peers investing more in EV development, infrastructure and marketing.
One such move came in November, when Ford and Globalfoundries (NASDAQ:GFS) announced a “collaboration to advance semiconductor manufacturing and technology development within the United States, aiming to boost chip supplies for Ford and the US automotive industry.” Given the importance of chips in EVs as well as the ongoing global chip shortage, Wall Street was pleased with this development. GFS has 7% of the global outsourced chip production market, according to data from TrendForce.
So, what should investors expect from F stock in the coming year? Given the current volatility in broader markets, Ford shares could come under pressure in the short-run. Interested readers could regard a decline toward $18.50 a share as a potential entry point. Let’s take a closer look.
How Recent Quarterly Results Came
Ford announced third-quarter results metrics on Oct.27. A top line of $35.68 billion was down from $37.50 billion achieved a year ago. However, automotive revenue beat analysts’ expectations. Adjusted earnings per share (EPS) came in at 51 cents. Cash flow from operations was at $7.0 billion.
Management gave an updated full-year adjusted earnings guidance of $10.5 billion to $11.5 billion, up from $9 billion to $10 billion. Investors were also pleased to learn more about various battery-electric vehicle (BEV) initiatives, such as an planned German EV factory as well as battery plants in Tennessee and Kentucky.
CFO John Lawler highlighted “the company expects to invest $40 billion to $45 billion in strategic capital expenditures between 2020 and 2025 — including one-half of the more than $30 billion it plans to devote exclusively to BEVs during that same period.”
Just ahead of the release of the quarterly results, F stock was around $16. Then on Dec. 10, it saw an all time high (ATH), shy of $21.50. Now it is around $20 and the current price supports a dividend yield of almost 2.0%. The board reinstated the regular dividend starting in Q4, after having halted payments in the early days of the pandemic.
Adding F Stock to Portfolios
Among 22 analysts polled, F stock has a “buy” rating. But the consensus of 19 analysts for a 12-month median price target stands at $20, implying little change from the current level. The 12-month price estimate currently ranges between $12 and $25.
F shares trade at 2.34x book value and 0.64x trailing sales. The consensus forward price-earnings ratio stands at 10.45x. By comparison, these three metrics for Tesla (NASDAQ:TSLA) are P/B of 37.75x, P/S of 24.67x and forward P/E of 121.95x.
Headlines regarding the omicron variant and the upcoming interest rate increases have put pressure on broader markets, especially those that have done well in the past year. Therefore, there could be a pullback in F shares, which would mean a better entry point for long-term investors. A potential decline toward $18.50 would improve the margin of safety.
Alternatively, investors could consider investing in an exchange-traded fund (ETF) that also holds F stock, these include:
- First Trust Nasdaq Transportation ETF (NASDAQ:FTXR): This fund is up 20.2% YTD, and F stock’s weighting is 8.53%, the largest share of the 30-holding portfolio.
- Pacer US Cash Cows 100 ETF (BATS:COWZ): The fund is up 37.8% YTD, and F stock’s weighting is 3.11%. also the largest holding in a 104-stock portfolio.
- iShares Self-Driving EV and Tech ETF (NYSEARCA:IDRV): The fund is up 23.3% YTD, and F stock’s weighting is 3.06%, number 11 among 103 holdings.
- Invesco S&P 500 Pure Value ETF (NYSEARCA:RPV): The fund is up 29.9% YTD, and F stock’s weighting is 2.93%, the number 1 holding among 119 stocks in the ETF’s portfolio.
The Bottom Line on Ford Stock
So far in 2021, the legacy auto manufacturer has outperformed the S&P 500 index by a broad margin as Ford shares are up triple digits this year. Yet, despite the impressive run-up in price in 2021, F stock comes at a reasonable valuation.
Investors with a two-to-three year horizon could consider buying the dips, especially around $18.50, or even below. The current optimism in F stock is likely to carry well into the new year.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.