New Reorganization Plan Makes Ford Stock a Long-Term Winner

With electric vehicle (EV) stocks still running on low battery power, Ford (NYSE:F) finds itself holding steady at around $17.50 per share. Although that’s not exactly exciting news, F stock is performing a lot better than some of the other EV stocks out there.

Ford (F) dealership sign against a blue sky.

Source: D K Grove / Shutterstock.com

Why? Several of the early stage EV-only automakers have tumbled in recent days, due to disappointing news. But Ford has just announced some promising news. The more than century-old automaker is moving its budding EV operation into its own distinct operating unit.

Some may have hoped it would instead spin off this unit. This may have helped to move the needle in the short run. Even so, the choice it’s making is the better one. Right now, Ford’s electric vehicle unit needs the profitability of its legacy operations to fund its development.

Pursuing this path, this fast-growing unit has a better chance of taking on the upstarts, as well as the EV ambitions of its rivals in Detroit, Germany and Japan. This latest move further boosts its status as one of the best vehicle electrification plays out there. You may want to consider it while shares trade sideways.

F Stock and Its Latest News

After weeks of rumors about a possible spinoff of its electric division, Ford Motor Company laid out its game plan to unleash the full potential of not only this business, but its legacy gas-powered vehicle business as well. So, what are the details of its reorganization plan? Instead of being two business lines under a single entity, the two will each become separate subsidiaries.

First, the legacy ICE business. Henceforth known as “Ford Blue,” this unit will focus on maximizing profitability. It will also provide engineering/manufacturing capabilities to its electric corporate sibling. Second, the electric unit, to be known as “Model e,” will focus on scaling up EV output. It will also develop and provide software and other advanced auto technology expertise to the “Blue” division.

Again, investors with a short time horizon may not be too excited about this plan. That may be a reason why F stock hasn’t seen a big bolt back to above $20 per share. Yet by eschewing a spinoff, all it’s sacrificing is moderate gains in the short run. In exchange, the potential for far greater returns in the long run.

Best of all? As impatient investors cash out, and other near-term headwinds weigh it down, its current share price may be a “can’t miss” entry point to enter/add to a position.

Slow and Steady Is the Better Approach

I know it’s frustrating that F stock is still valued like an “old school” automaker. It’s as if the market isn’t fully giving it credit for its EV efforts. Shares today trade for 8.5x earnings. Meanwhile, unprofitable EV startups are trading for more than 8.5x next year’s expected sales.

Yes, if it decided to instead spinoff this division, there may be a chance that it too would sport such a rich valuation. Along with the value of the existing Ford ICE business, the combined value of the two separate entities would be far greater than the combined entity’s current stock price. Then again, maybe not.

Valuations of EV pure plays have come down substantially in recent months. Also, shares in the resultant ICE-only unit would’ve likely tanked. The market would’ve given it a “melting ice cube” valuation. In short, a spinoff could’ve failed to unlock shareholder value.

But just because Ford has opted to keep its electric division within the fold, doesn’t mean it’ll continue to trade at such a low valuation. In the years ahead, as “Model e” gets to the point of profitability, and starts to supplant the ICE division, overall profits will go up.

As the EV business offers higher operating margins, in time the stock could see its valuation multiple expand. Together, this slow and steady approach will produce solid returns for investors.

The Verdict on F Stock

Earning a “B” rating in my Portfolio Grader, don’t view the muted reaction to Ford’s reorganization plans as a reason to pass up on it. Many of this stock’s more fair weather friends would have preferred it went with a full spin-off of “Model e.”

Also, other challenges are holding it back right now. For instance, the chip shortage, which is still creating production headwinds. With this, don’t expect things to kick into high gear anytime soon.

Yet if you can appreciate that it’s a long-term wager on the rise of EVs? Now’s an opportune time to buy F stock after it has backed up partially from its multi-decade high.

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.

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