Ford Motor (NYSE:F) is looking to move into electric vehicles (EVs) in a big way. As a result, F stock is likely to reflect a huge upside over the coming year. As I wrote earlier this month, the stock is likely to more than double to over $50 by the end of the year.
In fact, as of Jan. 28, Ford shares were below $20 at $19.54. When I last wrote about it, F stock was at $24.69 on Jan. 18. This does not make much sense to me now.
In fact, as of Jan. 28, F stock is already down $1.23 from $20.77, where it ended 2021. That represents a decline of over 5.9% year-to-date (YTD). But this is not likely to last, and F stock looks cheap here now.
Why Ford Looks Cheap Here Now
For one, investors who buy F stock now are getting a good deal. And it doesn’t hurt that you get paid by the company to wait for the value to emerge. Ford’s annual dividend of 20 cents per share now provides an annual dividend yield of 1.02% as of Jan. 28.
For one, it’s clear the automaker is going to start delivering its electric version of the popular F-150 pickup truck by this spring. This EV F-150 is known as the F-150 Lightning Pro. In fact, on Jan. 4, Ford said it would double its production of the F-150 Lightning Pro to 150,000 EVs per year.
In addition, on Jan. 26, Ford announced that more than 300 small, medium and large business customers had placed orders for 10,000 all-electric E-Transit vans. These are electric vans that Ford is planning to manufacture.
One such customer is Walmart (NYSE:WMT), which has already ordered 1,100 of the vans for use at stores as well as distribution and headquarters locations.
In addition, Ford said that sales of its Mustang Mach-E (the EV version of the Mustang) totaled 27,140 in 2021. This includes 12,284 Mustang Mach-E’s made in December. Based on last month’s production numbers, its annualized Mach-E EV production rate is 147,408, before any production ramps, and a quarterly rate of 36,852.
What F Stock Is Worth
If we add up the F-150 and the Mach-E EV production rate going forward, the total EV production will be at least 300,000. That is from adding 150,000 F-150 Lightning and 147,408 Mach-E, plus at least 2,500 E-Transit vans.
This annual number is about equal to the number of EVs Tesla already makes in one quarter — 305,840 as of Q4. So, in theory, Ford is at about one-quarter of the production rate that Tesla has already achieved with EVs. The difference, of course, is that Ford has yet to actually produce this many EVs, but Tesla already is doing this.
But, given that Ford is on track to manufacture this number of EVs, we can compare the market values. For example, as of Jan. 28, Tesla has a market value of $852.9 billion, while Ford’s is $78.1 billion.
Let’s assume that within the next year, Ford will deserve at least one-quarter of Tesla’s market value, assuming it ramps up to 300,000 EVs in one year. That would put its equivalent value at one quarter of $853 billion, or $213 billion. (This, of course, gives no value whatsoever to Ford’s ongoing internal combustion engine vehicle sales.)
Therefore, this implies Ford’s market capitalization could rise from $78 billion to $213 billion in the next two years or so. That is a potential gain of 173% and puts the value of F stock at 2.73 times its Jan. 28 price of $19.54, or $53.34 per share.
What to Do With F Stock
Remember, there are a lot of assumptions here. But at least there is a glide path for investors to determine how high F stock could rise.
It clearly has to be able to start producing large numbers of EVs, whether they are F-150 Lightning Pros, E-Transits or Mustang Mach-Es. But if it is successful in this, you can expect to see Ford rise close to $53 or so.
Given that this could take two years, this implies the expected annual compounded return is 65.2% per year for the next years. It may not occur linearly like this. The market may want to see proof that Ford is making good progress transitioning away from internal combustion engines. But, if it does, investors can expect to make a good return on F stock.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) 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.
Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.
