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I am one of those investors who bought Ford Motor Company (NYSE: F ) in 2017 as a defensive play, believing that with a price-to-earnings multiple of 6x and a dividend paying more than 5%, F stock couldn't possibly go any lower.
It could. It did.
Ford opened for trade yesterday at $7.85 per share. At that price it had a PE of 5.06x and a dividend yield of 7.64%. All of this after the price popped 3% a day earlier, when people were buying anything in the market's after-Christmas surge.
Just as it is foolish to argue with Tesla (NASDAQ: TSLA ) at $326 per share, and short it, it's equally foolish to argue with Ford's price. It is what it is. The same day Ford gained 3%, Tesla was up 10%.
People like what they like. All you can really do is ask why.
Why Did I♥Ford?
Since Jim Hackett was named CEO in May 2017, Ford stock is down 28% while General Motors (NYSE: GM ) is up slightly.
This is not because Hackett is stupid. The plans he set - abandoning standard cars, emphasizing trucks and SUVs, investing in electric and autonomous technology - have become GM's playbook as well .
Ford also looks to be on track to approach 2017's $156 billion in sales, with $36.3 billion in revenue and a profit of 33 cents per share expected when it reports in January. That profit is more than double the company's 15 cents per share dividend payout. Ford consistently covers the dividend with earnings.
Investors just don't see Ford getting through the next recession. U.S. auto sales peaked in 2017 but have been hovering stubbornly close to that peak ever since, coming in at 16.72 million for October . At the bottom of the last recession, in 2009, only 9 million cars were selling each month.
At the end of September Ford had just $12 billion in long-term debt, $1.7 billion in current debt, and $23.5 billion in cash and short-term investments. In theory, it could pay all its debts at a stroke. The company has averaged $5 billion in operating cash flows the last two quarters.
By way of comparison, Tesla was sitting on $9.7 billion in long-term debt and $3 billion in cash at the end of September and had under $1 billion in operating cash flow for the first three quarters of the year.
Who Wants Ford Now?
At Ford's Dec. 27 market cap of $31 billion, Alphabet (NASDAQ: GOOGL ) could buy Ford for its Waymo self-driving car unit with the equivalent of seat cushion money, despite a horrible three months that has taken the equivalent of more than three Fords off its market cap.
As an investor, in other words, you're still better off in tech than in an industrial stock like Ford. The company's international business continues to struggle, making it ever-more-dependent on the gas guzzling U.S. market to stay afloat .
The trade wars are already rocking Ford, with China sales rolling over , and Ford considering a risky joint-venture with Volkswagen (OTCMKTS: VLKAY ), sharing development costs and assembly plants.
Ford says the restructuring it announced in June, which includes plans to spend $11 billion over three-to-five years, will likely result in the loss of more than 10% of its 202,000 jobs.
Bottom Line on Ford Stock
To show that the company intends to be a viable part of its hometown, Ford has begun the renovation of a 100 year-old Detroit train station . But investors have written off Ford as they have written off downtown Detroit, which seems unfair. At its current price Ford should be a buy. But heading into what may be another recession, it's still anything but that.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family , available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn . As of this writing he owned no shares in companies mentioned in this article.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
