Ford Stock: A Short-Term Play (NYSE:F)

Investment thesis

American multinational automaker Ford (NYSE:F) Motor Company has been in operation for more than a century. While SUV and truck demand has surged recently, the desire for passenger automobiles has decreased. Ford has benefited from this change in consumer tastes as it has a significant market share in the SUV and truck markets.

However, this has not been depicted in the company’s stock price as it has fallen almost 48% YTD and therefore many investors wonder if there is a mismatch between the company’s fair value and its stock price.

Financials

Ford has generally performed well in recent years in terms of its financial performance. The business reported a TTM operating income of $10.7 billion, up from around $10.6 billion in 2021, and a YoY revenue growth of almost 3%. Strong performance in the company’s automotive division, which witnessed improved volumes, price, and mix as well as advantageous exchange rates, were major contributors to this improvement.

Ford has solid financial outcomes in addition to a healthy balance sheet, with over $31 billion in total cash and ST investments as of the most recent quarter. Additionally, the business has a proven track record of maximizing shareholder returns through dividends and share repurchases.

Ford’s Future

The demand for Ford’s products, the state of the economy, the company’s financial health, and other important aspects are some of the main variables that could affect Ford’s future performance.

Ford, as previously indicated, has a significant presence in the SUV and truck markets, which have seen recent growth in terms of demand for its products. This might improve the performance of the business in the future. Still, the rivalry in the automobile sector is getting tougher from both established competitors and new manufacturers of electric vehicles. These factors could make the company’s future difficult.

However, Ford has a variety of strategies in place to stay competitive in the quickly changing automotive sector. These initiatives include financial commitments to sustainable practices, alliances with other businesses, and investments in electric and autonomous vehicles.

Electric Vehicles (EV)

Ford has been focusing on the creation of electric cars (EVs) recently in order to meet growing consumer demand for more environmentally friendly transportation options and to maintain its competitiveness in the quickly changing automotive market.

Ford has made a number of announcements on electric car initiatives in order to achieve this. For instance, in an effort to catch up to market leaders like Tesla (TSLA), the company has announced plans to spend up to $50 billion on the development of electric vehicles, up from the previous $30 billion, through 2026 and run its EV unit separately from its legacy combustion engine business. This involves the creation of a variety of new electric vehicles, including the Ford F-150 Lightning and the Ford Mustang Mach-E, both of which are fully electric SUVs.

Ford has been collaborating with other businesses to increase the range of electric vehicles it offers in addition to creating its own electric vehicles. For instance, the business announced ambitions to use Rivian’s skateboard platform for a new electric car and struck a relationship with Volkswagen to co-develop electric automobiles. Through these agreements, the business is able to swiftly introduce new electric car models to the market by utilizing the knowledge and assets of other businesses. Ford is collaborating with businesses in a variety of industries, including technology and mobility services, in addition to those that are directly tied to electric vehicles.

In conclusion, it is obvious that Ford is committed to the development of electric vehicles and is making a number of efforts to increase the range of electric vehicles it offers.

Sustainability

The company’s emphasis on sustainability and efforts to lessen its environmental impact are two things that some investors might not be aware of.

Ford has made a number of sustainability-related announcements in recent years, including goals to achieve carbon neutrality by 2050. The corporation is making an effort to lower its greenhouse gas emissions by taking a number of steps, such as improving the fuel efficiency of its cars, cutting back on the usage of single-use plastics, and investing in the creation of more environmentally friendly cars.

In addition to its efforts to reduce its environmental impact, Ford is also working to improve the sustainability of its supply chain. The corporation is aiming to lessen its dependency on single-use plastics and has set a goal of obtaining all of its electricity from renewable sources by 2035.

It is obvious that Ford is dedicated to sustainability and that it is making a variety of efforts to lessen its impact on the environment and increase the sustainability of its business practices. This is important for investors to know, as they should consider a company’s sustainability efforts when evaluating its long-term prospects.

Risks

As with any other investment, buying Ford Motor Company stock carries a number of risks that investors should consider before making any investment decisions.

Competition from other car firms is a significant danger. As previously indicated, Ford is up against both established rivals and fresh competitors, such as producers of electric vehicles and its market share and profitability may be impacted by this. Since 2017, the company has been losing market share every year and although SUV and truck demand has surged recently, in order to be competitive, the business still must consistently develop and provide high-quality items that cater to consumers’ requirements and preferences (which seems to be doing).

The effect of economic conditions on the success of the company is another risk to take into account. Consumers’ willingness to buy new cars may decline during economic downturns, which may have an effect on the business’s sales and profitability. If the world’s economy keeps getting worse, Ford might face some serious problems with its revenue, and taking into consideration the heavy investments in the EV segment that the company is going through, I would not be surprised if Ford had some unprofitable quarters. If that scenario comes true, many shareholders will decide to sell and this will have a meaningful impact on the stock’s price. However, Ford has a wide range of products and a significant presence in international markets, which helps minimize the effects of economic downturns.

Finally, Ford is investing heavily in the development of electric and autonomous vehicles in order to remain competitive in the rapidly evolving automotive industry. While these investments may pay off in the long term, there is always the risk that they may not perform as expected, which could impact the company’s financial performance. If investors believe that the money that Ford is putting back into the company does not bear fruit for them, they might decide to cash their position and invest the money otherwise. This will make the company’s stock price fall even further and its shareholders losing money.

Overall, it is important for investors to carefully consider these risks before making any investment decisions.

Conclusion

Overall, Ford is a well-established company with a strong presence in the global automotive market. While it faces a number of challenges, it also has a number of strengths, including a diverse product portfolio, a strong financial position, and a commitment to innovation. Having said that, Ford is still a mature company that is probably not going to bring phenomenal returns from this point. Based on the company’s prospects and the valuation that is currently trading for, I would say that it is undervalued and therefore someone could benefit from this by buying the stock now and selling it when the market rebounds and the stock goes back to fairly valued levels. However, I wouldn’t recommend this stock for a long-term play at least not before seeing how the investments in the EV segment play out. This is why, for now, I rate Ford’s stock as a HOLD.