I’ve been very bullish on Ford (NYSE:F) stock for a long time.
Way back in June 2020, I wrote that it was a good time to buy F stock. “In the coming months, Ford should also benefit from its scheduled launch of new versions of popular vehicles,” I predicted.
That was a good call, as, largely propelled by its release of very popular new vehicles and positive macro trends, Ford’s shares have soared about 250% since that article was published.
But I believe that the shares, for five main reasons that I’ll describe below, can still advance much further over the longer term. Among these points are the hot sales of Ford’s electric vehicles, the company’s strong third-quarter results, and the still-low valuation of F stock.
Here’s more information about the five key reasons to buy Ford’s shares.
1. The EV and Connected-Car Revolutions
Given the very strong orders for Ford’s electric F-150 Lightning and its Mustang Mach-E EV, the automaker has conclusively demonstrated that there is a great deal of demand for its EVs.
Consequently, as more EV infrastructure is built and EV tax credits are lifted in the U.S. and other countries, and as Ford releases many more electric-vehicle models, the company’s top line should jump. Meanwhile, its increased production should cause its per-vehicle costs to drop, lifting its bottom line.
Also likely to raise Ford’s financial results in the longer term are the rapidly increasing subscription revenue that automakers will probably obtain from the owners of connected vehicles and EVs.
2. Strong Financials and Outlook
On Oct. 27, Ford reported “sharply higher” gains from the second quarter to the third quarter in revenue, net income, adjusted earnings before interest and taxes, cash flow from operations and adjusted free cash flow.
The company’s Q3 earnings per share came in at 45 cents, beating analysts’ average outlook by 24 cents. Revenue was $33.2 billion, surpassing the mean estimate by $440 million.
Impressively, all 19 analysts covering F stock raised their estimates for the company in the last 90 days. And analysts, on average, now predict that the firm’s EPS jumped to 41 cents last quarter, while its revenue climbed to nearly $36 billion.
For 2022, the mean estimate calls for Ford’s EPS to rise to $2.01, versus $1.91 during 2021. Sales are projected to jump from $126.9 billion to $145.7 billion.
3. Multiple Macro Trends Should Benefit Ford
In addition to the positive macro trends for EVs that I mentioned earlier, Ford should get a lift from the continued strength of U.S. consumers, spurred by the strong labor market. Also poised to benefit the automaker are the likely, continued easing of the chip shortage and reduced bottlenecks for the supply chains in general.
The continued move of many millennials from cities to suburbia, propelled by more stringent coronavirus rules and higher crime, rents, and taxes in urban areas, will also continue to be positive for Ford.
Although rising interest rates may hinder Ford’s sales, rates remain relatively low from a historical perspective and are likely to stay that way for a long time. Given that outlook and Ford’s positive catalysts, the rate increases will probably have only a limited impact on Ford’s sales.
4. Ford’s Autonomous Vehicle Business
On Sept. 15, Ford, its autonomous-vehicle subsidiary Argo, and Walmart (NYSE:WMT), announced that they would launch an autonomous vehicle delivery service in parts of Miami, Washington, D.C. and Austin, Texas.
I think the move indicates that Ford will, in the not-too-distant future, greatly expand its AV delivery services to many tens of millions of consumers. When that happens, the AV business should start to move the needle for Ford’s financial results and for F stock.
5. The Valuation of F Stock Remains Low
Ford’s price-sales ratio is a tiny 0.27, and its forward price-earnings ratio is about 11.5. Contrast that with Tesla (NASDAQ:TSLA), whose price-sales ratio is 24 and whose price-earnings ratio is around 350, and you’ll understand how low the valuation of Ford’s shares still is.
The Bottom Line
Given Ford’s multiple, strong, positive catalysts and the low valuation of its shares, F stock remains a great pick for long-term investors.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Plug Power, Roku, and Snap. You can reach him on Stocktwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.