Investors might be eyeing the Detroit automaker as a potential portfolio addition.
Shareholders of Ford (F 0.66%) have had a disappointing run, with the business posting a total return of just 24% in the past decade. For comparison's sake, an investment in the S&P 500 would have more than tripled your capital over that time frame.
Should investors buy this well-known auto stock right now despite its poor track record? Let's look at the good, bad, and ugly with Ford before coming to a conclusion.
The good
In recent times, Ford has been reporting solid financial results. Revenue soared 16% in 2022 and 18.1% in 2023, well above the rates in the previous years. After supply chain issues that rattled the industry during the pandemic started easing, the company was able to benefit from higher volume and higher prices.
During the earnings announcement for the first quarter (ended March 31), management maintained its guidance for adjusted earnings before interest and taxes this year to total $11 billion at the midpoint. And due to lower capital expenditures, it now believes adjusted free cash flow will be higher than previously forecast.
Besides Ford being on what appears to be healthy footing, income-seeking investors will certainly appreciate the company's hefty dividend yield of 4.7%. That's a nice boost for potential returns.
The bad
Tesla's monumental rise over the past decade to become a $772 billion company has rattled the auto sector. Elon Musk's business is the world's leading seller of electric vehicles (EVs). This success kicked off a big strategic shift among legacy carmakers to develop their own EVs.
Ford is one of the players in this game with popular models like the F-150 Lightning pickup and Mustang Mach-E SUV. In 2023, the company generated $5.9 billion in revenue from what it calls its model e segment, where its EV operations are housed. That figure was up 12% year over year.
But the problem is that this division is far from profitable. It reported an operating loss of $1.3 billion in the first quarter, after losing $4.7 billion in all of 2023. It's anyone's guess when it will produce earnings.
To make matters worse, management has decided to delay $12 billion in EV-related investments because demand isn't as strong as hoped. Ford needs to figure out a clear path to profitable growth with its EVs, otherwise this segment will continue to be a huge drag on its financials.
The ugly
I don't believe Ford is a worthy investment for many reasons.For starters, the industry is extremely cyclical. The company is sure to be hit hard in a recession, when consumer confidence is low and unemployment is high, and people hold off on buying new vehicles. It's impossible to predict when the economic cycle will turn in order to buy and sell Ford shares at the right time.
The business operates in a mature industry. According to the International Energy Agency, the number of passenger vehicles sold globally in 2022, 74.8 million, was just 12% higher than in 2010.
Even if EVs really do take off, I don't see Ford's sales volume changing when compared to the past. Add in the fact that competition is fierce, and the automaker doesn't have any sort of economic moat.
There is also cause for concern from a financial perspective. In the past decade, its operating margin has averaged a disappointing 1.9%. And the company's operations are extremely capital intensive; it must always spend big on research and development, manufacturing, labor, and marketing to maintain its industry position, let alone strengthen it.The negatives are too difficult to ignore, so I'm not buying Ford stock.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
FAQs
Key Points. This stock has a terrible track record of rewarding shareholders. Ford's pro segment continues to be a bright spot. Weak growth prospects and low profitability are just two reasons to avoid this stock.
What does Jim Cramer think of Ford stock? ›
He emphasized that the company is not a miracle company but a firm specializing in high-performance chips that enhance productivity and problem-solving. Cramer noted that the market had unfairly elevated the company to a status where it was expected to perform miraculous feats beyond its actual capabilities.
Is Ford stock a good buy right now? ›
The average price target represents 27.88% Increase from the current price of $10.69. What do analysts say about Ford Motor? Ford Motor's analyst rating consensus is a Moderate Buy. This is based on the ratings of 15 Wall Streets Analysts.
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Ford stock could reach the $100 price level if the company manages to capture a significant EV market share and increase its production. Even then, the $100 price milestone would be challenging to reach, as the stock would have to trade nearly three times above its late 1990s all-time high.
Is Ford over or undervalued? ›
Fair Value Estimate for Ford Stock
With its 4-star rating, we believe Ford's stock is undervalued compared with our long-term fair value estimate of $19 per share.
What are the analyst predictions for Ford stock? ›
Ford Motor Co has a consensus price target of $14.72 based on the ratings of 28 analysts. The high is $28 issued by B of A Securities on September 9, 2022. The low is $9 issued by Wells Fargo on September 10, 2024.
Why are people buying Ford stock? ›
But Ford also has immense upside if it can get its EV operations to break even over the next few years, continue dishing out its dividend, and grow subscription services and sales with Ford Pro. Those are three long-term reasons to believe Ford is a long-term buy despite current challenges.
Is Ford a safe investment? ›
The good. In recent times, Ford has been reporting solid financial results. Revenue soared 16% in 2022 and 18.1% in 2023, well above the rates in the previous years.
Is Ford a value trap? ›
This is its lowest valuation since at least the start of 2022, and it's a massive 80% discount to the S&P 500's multiple. Consequently, as of this writing, Ford pays out a hefty dividend yield of 6.2%. Perhaps income-seeking investors will appreciate this. However, I believe Ford looks like a classic value trap.
The Motley Fool has positions in and recommends Alphabet, Salesforce, Snowflake, and UiPath.
What are the 5 AI stocks Motley Fool recommends? ›
The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends Nasdaq and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
What stock will boom in 2024? ›
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| 1. | Man Infra | 189.25 |
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22 more rowsFord finds support from accumulated volume at $10.03 and this level may hold a buying opportunity as an upwards reaction can be expected when the support is being tested. This stock has average movements during the day and with good trading volume, the risk is considered to be medium.
Is Ford stock going to split in 2024? ›
Forward Industries, Inc. (FORD) will effect a one-for-ten (1-10) reverse split of its Common Stock. The reverse stock split will become effective on Tuesday, June 18, 2024.
Why does Ford stock stay so low? ›
Market tends to overreact in the short term. Ford also had to deal with plant shutdowns, rising material costs, and quality issues at production plants this year, which have all contributed to the negative sentiment toward the company.
Why is Ford stock not doing well? ›
Earnings miss
One of the reasons for Ford's disappointing earnings was tied to reserves set aside for warranty issues. CFO John Lawler said the company was making progress in addressing quality issues, but this remains a potential problem.
Is Ford a high risk stock? ›
Ford Market Sensitivity And Downside Risk
Ford Motor exhibits very low volatility with skewness of -3.72 and kurtosis of 21.84. Understanding different market volatility trends often help investors to time the market.
Is Ford stock a value trap? ›
This is its lowest valuation since at least the start of 2022, and it's a massive 80% discount to the S&P 500's multiple. Consequently, as of this writing, Ford pays out a hefty dividend yield of 6.2%. Perhaps income-seeking investors will appreciate this. However, I believe Ford looks like a classic value trap.
Is Ford Money safe to invest in? ›
As a fully regulated bank, your savings are also protected by the Financial Services Compensation Scheme (FSCS), so we're not just a name you know – but one you can trust.
