Incorporated in 1903, Ford (NYSE: F) is sometimes viewed as a legacy business — the type of company your great-grandfather might have invested in. Fast-forward to the 2020s, and it’s challenging to convince younger traders of Ford’s value proposition during a time of vehicle electrification, persistently high inflation, and shortages of supplies and workers.
And it’s increasingly difficult to convert jittery investors into Ford fans after a severe share-price slide. The bulls and bears both have financial and operational data points to cherry-pick, and frankly, Ford just isn’t as “sexy” as unabashed disruptors like Tesla and Lucid.
Yet, Ford shouldn’t be dismissed as a dinosaur as the company is actually making significant inroads in its pivot to clean-energy vehicles. Besides, stock-price drawdowns can lead to prime value-buying opportunities — and there’s a terrific value in this surprisingly modern American automotive icon right now.
Is Ford stock truly “on sale”? The share price did come down from $25.87 in January to $11 and change in May, and 50%-plus discounts don’t come around every day. A skeptical view, however, might be that Ford stock didn’t deserve to trade at $25 in the first place.
Maybe the early 2022 bull run was overdone, but Ford’s trailing 12-month price-earnings (P/E) ratio is eye-catchingly low at just under four. Plus, Ford pays a forward annual dividend yield of 3.56%, so already the stock is starting to sound like a perfect Warren Buffett–style holding (even though Ford stock isn’t actually part of Berkshire Hathaway‘s portfolio).
As a point of comparison, Tesla’s P/E ratio is 88, and Lucid doesn’t have a P/E ratio because it’s not a profitable business; moreover, neither of those automakers pays a dividend. So from an old-school valuation-and-yield perspective, Ford is looking pretty good at the moment.
The Rivian problem
Given the slump in Ford stock, one might be tempted to assume that the company’s been a chronic underperformer lately. Granted, one of Ford’s investments hasn’t been a winner, but overall the company’s results have been respectable.
In 2022’s first quarter, Ford’s $34.5 billion in revenue was in line with Wall Street’s expectations, while the company’s quarterly earnings per share (EPS) of $0.38 slightly beat analysts’ estimate of around $0.37. However, Ford’s bottom-line results were better during the year-earlier quarter — a time when Ford’s stake in Rivian Automotive (NASDAQ: RIVN) probably seemed like a surefire winner.
Fast forward to May 2022, and Ford sold 15 million Rivian shares after they had lost significant value. Ford sustained a $5.4 billion mark-to-market loss on its Rivian investment during 2022’s first quarter, so excluding that, Ford’s quarterly performance would have been much better than the published figures suggest.
An electrifying shift
Beyond the rock-bottom valuation multiple and the generous dividend payments, investors should be on board with the electric vehicle movement if they’re going to buy Ford stock with confidence. Long gone are the days when Ford relied on gas-guzzling, internal-combustion-engine vehicles as its bread and butter; today, this old company is evolving faster than you might expect.
Ford’s big shift to vehicle electrification is happening on more than one continent. Earlier this year, Ford introduced its E-Transit and E-Transit Custom all-electric vans in Europe, with a “commitment to reach zero emissions for all Ford vehicle sales in Europe and carbon neutrality across its European footprint by 2035.” Meanwhile, back in its home country, Ford commenced full production of its electric F-150 Lightning trucks with with a starting price below $40,000.
In the month of May, Ford’s pivot to electric vehicles was on full display as the automaker’s total U.S. truck and SUV sales declined slightly year over year, but Ford’s U.S. electric vehicle sales jumped 221.5%. This represents a growth rate that’s “almost four times the rate of the industry,” according to Andrew Frick, vice president of sales, distribution & trucks, Ford Blue.
If any catalyst can drive Ford stock back above $20, it’s the company’s unmistakable commitment to vehicle electrification. So go ahead and pick your reason for favoring Ford — value, dividends, or the company’s multiregional electric-vehicle push. At the current price point, buying Ford stock should put you in the driver’s seat.
David Moadel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares) and Tesla. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.