Despite broader concerns about market valuations, Ford (F) stands out as a deep-value stock with attractive metrics. Its mid-single-digit price-to-earnings multiples and generous 5% dividend yield make it an intriguing investment option compared to the average S&P 500 constituent.
Although Ford stock has lagged behind the markets, showing a 3.9% decline in 2024 and a 30% drop over the past decade, its affordability suggests limited downside risk. Despite ongoing critics labeling it a “value trap,” this underperformer may be a hidden gem worth considering at current prices.
The Hurdles in Ford’s Path
The automotive sector is undergoing a tumultuous phase, characterized by oversupply due to failed projected demands in the electric vehicle (EV) market. Ford, particularly transparent about its EV business, reported significant losses of $4.7 billion in 2023 in the segment, with projections indicating further losses in 2024.
While the EV sector was anticipated to boost profits, Ford’s EV losses are currently offsetting gains in its other segments, posing a challenge to the company’s overall performance and profitability.
Market Sentiments and Analyst Projections
Investor skepticism towards Ford stems from concerns about slowing growth, stagnant profits, and uncertainties surrounding EV profitability amidst Tesla’s price wars. Analysts maintain a “Moderate Buy” rating on Ford stock, indicating a mixed opinion and lack of overwhelming bullish sentiment.
The Potential for Upside
Despite its challenges, Ford’s stock presents a significant undervaluation, trading at a next 12-month (NTM) PE multiple of 5.9x. CEO Jim Farley attributes this undervaluation to industry-wide EV issues, highlighting Ford Pro’s commercial business prospects and revenue projections.
With optimistic forecasts for Ford’s commercial and internal combustion engine (ICE) segments, supplemented by a robust product portfolio, Ford remains poised for growth and adaptation in the shifting automotive landscape.
Dividend Strategy and Financial Outlook
While facing obstacles, both Ford and GM exhibit strong free cash flows. Unlike GM’s share repurchase initiatives, Ford focuses on dividends, providing investors with consistent returns and potential special dividends. By aiming to allocate a significant portion of free cash flows to shareholders, Ford demonstrates a commitment to dividend stability and growth.
In conclusion, Ford’s gradual shift towards profitability, combined with its dividend resilience, suggests a potential reevaluation by the market in the future. Investors can find solace in Ford’s dividend offerings and the possibility of supplemental returns as it continues its cash flow distribution strategy.