Is Ford Stock a Buy?

When considering investments, it’s crucial to weigh both pros and cons. Currently, Ford, along with its Detroit “Big Three” counterparts, faces unionized strikes, affecting some of their operations. It’s an evolving situation worth tracking.

Given this, some might see this as a cue to offload shares. However, others may view the recent 21% decline in stock price (from its 52-week high on July 12) as a golden opportunity to buy.

To make a well-informed decision on Ford, it’s essential to grasp the arguments from both sides. Let’s delve deeper into the company’s profile.

Why you might want to invest: Ford’s latest financial results are undeniably impressive. There was a 12% YoY revenue rise in the latest quarter (ending June 30, 2023) after a 20% surge in the year’s first quarter. The increase is attributed to strong demand and effective pricing strategies. Moreover, the diluted earnings per share for Q2 surged to $0.47 from $0.16 in the same period last year.

Also, the company has revised its annual guidance upwards. The anticipated adjusted operating income is now set around $11.5 billion.

Ford is ambitiously capitalizing on the global shift to electric vehicles (EVs) with its Ford Model e division. Although currently operating at a loss, Ford’s legacy in design, manufacturing, and marketing is expected to fortify its venture into EVs, particularly with popular models like the Mustang Mach-E and F-150 Lightning.

Currently trading at 52% below its all-time high from January 2022, Ford’s shares come at an attractive valuation, especially when compared to the market average. For some, this might be an irresistible investment opportunity.

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Reasons for caution: However, there are notable risks associated with investing in Ford. The auto industry is fiercely competitive, with giants like General Motors, Stellantis, and international behemoths such as Toyota and Honda. In the EV segment, Tesla overshadows Ford.

The multitude of options for consumers makes it challenging for a single brand to gain prominence. While luxury brands manage to distinguish themselves, Ford doesn’t enjoy such a luxury status.

Another concern is the cyclical nature of the auto industry, which is sensitive to macroeconomic elements like interest rates and unemployment. Businesses selling big-ticket items like cars can be adversely affected in a downturn.

Historically, Ford’s financial performance hasn’t been stellar. Over the past decade, its operating margin averaged a modest 7.5%, underscoring the industry’s competitive and capital-intensive nature.

Moreover, the persistent need for heavy investments, especially when juxtaposed with tech companies’ asset-light operations, makes Ford’s investment profile less appealing for some.

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Mai Linh Pham

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