Is There Value in Ford?

I was a Ford (F) bull for quite a long time, however since the stock traded sideways for over twelve months, I changed my stance last year as I realized the stock was not a good bet for long-term investors. Ford has been in a downtrend over the last two years and weak Q3 numbers put further pressure on the stock.

Historically, Ford has always been a cheap stock, and even with the stock currently trading at 5.4 times trailing earnings, I am still not sure about its long-term potential. That being said, I think traders can benefit from the recent selloff as I believe Ford’s fundamentals are strong and should lead to a partial or complete recovery in the coming months.

After boasting record profits earlier this year, last month, Ford dropped a severe profit warning as the company’s executives said the automaker is spending more than anticipated on incentives as U.S. vehicle demand softens, generating less revenue than expected in China and facing at least a $1 billion hit over the next three years from the Brexit vote in Europe.

Ford’s management has always been good at giving setting honest expectations that some time tend to be too pessimistic only to beat those expectations later.  Although Ford beating expectations doesn’t really push the stock higher, a trend that has been frustrating for long-term investors, I think things may change this time as Ford’s fundamentals support a small breakout in the short-term.

As mentioned above, Ford is trading at just 5.4 times trailing earnings and has a dividend yield of 4.88%.

Is There Value in Ford?
Image by Mahal / Pixabay
I don’t see the automobile market being beat down as bad as Ford’s valuation suggests. Since the recession, the average age of automobiles is the U.S. has risen to a record breaking level of 11.4 years. Sooner or later, these automobiles will have to be replaced. Thus, I think the concerns surrounding the peak in automobile sales are exaggerated.


All the foreseeable headwinds are currently priced in Ford’s stock and it has limited downside at these levels. The automobile industry isn’t as bad as the valuations of the industry leaders suggest, which is why I expect Ford to recover in the short-term. Even if the stock doesn’t recover, investors can enjoy the healthy dividend while waiting for a turnaround. Hence, I think Ford is a good stock to buy for the short term.

Disclosure: No position

Published on Aug 26, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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