Whether you own Ford (NYSE:F) stock, or are mulling adding it to your portfolio, you may find its current price performance frustrating. Although F stock has been inching back in recent days, it’s still far from seeing the levels of enthusiasm seen with it as recently as January.
Yes, much of its slide in price may have been market-driven. However company-specific issues have also impacted its performance. For instance, supply chain headwinds resulted in it delivering underwhelming results during 2021.
As for its move into EVs, the catalyst that helped it zoom to as much as $25.87 per share? For now, the market is in “show me” mode with EV plays. No longer moving higher on excitement alone, it likely won’t be until the industry makes further progress that past bullishness will return.
Especially as recent events bring a mixed bag of opportunities and risks for the space. The Russian invasion of Ukraine and the resultant run up in oil prices could spark faster adoption of EVs. At the same time, though, rocketing raw materials prices for EVs could outweigh this.
Nevertheless, while it may continue to stay stuck between $15 and $20 per share in the short term, that’s not necessarily a reason to stay away. The crowd may be unsure of its future, but with a key person with the company making major insider purchases? Its future is likely far more promising than current sentiment suggests.
Why F Stock Finds Itself Stuck in Neutral
Again, it’s not only external uncertainties that have knocked Ford shares down since January. Production headwinds impacted its performance last year. These issues, related to chip shortage and other supply chain-related problems, continue to persist. As a result, many are not confident the company can deliver results in-line with expectations.
Along with this, worries about a recession are also likely having an impact on F stock. Demand, which is sky-high now, could dry up in an economic downturn. Right at the same time the automaker is hoping supply headwinds pass, enabling it to resume full production.
On top of this, it’s also possible the company’s decision of what to do with its EV unit may be causing ho-hum feelings about its shares today. Instead of spinning off the unit, which many investors wanted it to do, the automaker’s reorganization plan involves keeping it within the fold, but as an independent division.
Add in the current “on the fence” view about EV stocks, and it’s easy to see why the crowd is erring on the side of disappointment. Even so, it may be worthwhile to go against the grain instead.
Ford Could Accelerate in Price Down the Road
In the near term, F stock could remain rangebound. But a little bit further down the road (pun intended), we could see shares in this automotive legend accelerate back toward higher prices.
Why? The stock sits today at a price that heavily discounts its future earnings potential. That is, Ford trades for around 8.3x expected earnings for 2022 and 7.4x expected earnings for 2023. Yes, traditionally automakers have historically traded at a low valuation. Even during good times.
Yet assuming EV stocks come back in vogue, which is likely given the trend isn’t going away, the company’s continued success in this area could help it get back to the double-digit forward multiple it traded for up until the start of 2022.
That’s not all. Looking at a longer time horizon, profitability could continue to rise. Largely, due to management’s long-term cost reduction efforts. With plans to cut $3 billion from its structural cost, Ford could see its adjusted operating margins rise from 7.3% in 2021, to 10% by 2026. These cost savings will fall straight to its bottom line.
Put simply, the stunning rise of the price of Ford shares since 2020, which got it out of a multi-decade slump, isn’t over. Further rounds of big price appreciation may lie ahead.
Bottom Line on F Stock
In the short-term it may appear like the crowd is making the right call on this stock. But instead of following their lead, you may want to follow the lead of Bill Ford.
The company’s Executive Chairman, not to mention, the great-grandson of founder Henry Ford, recently added an additional block of shares to his personal holdings. It’s important to mention that he also was adding shares back in December. At the time, the stock was trading for above $20 per share. Clearly, this insider isn’t worried that shares have topped out.
A fundamentally superior EV play, if you’re bullish on F stock, don’t let current market sentiment scare you away.
F stock earns a “B” rating in my Portfolio Grader.
On the date of publication, Louis Navellier had a long position in F. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
