2016 has been a disappointing year for investors in Ford (NYSE: F). The automaker's shares are down by 14% while the S&P 500 is up by 6%. However, we think that now could prove to be a great time to buy Ford, with the following four catalysts having the potential to push its share price upwards moving forward.
We see Ford's future as being a slightly different kind of business. Sure, we feel that Ford will continue to manufacture affordable cars for the masses, but we think that it has the potential to diversify into the wider mobility market. For example, Ford currently has a market share in the $2.3 trillion global auto market of around 6%. However, the transportation services market, which includes other means of transport such as mass transit, car sharing and taxis, is worth around $5.4 trillion per annum.
At the present time, Ford only has a position in the automaker and not the transportation services market. However, with the company intending on emerging as a more diversified transportation business moving forward, we think it has the potential to win market share in the wider transportation services market. In our view, this could help its sales, profitability and its share price moving forward.
We feel that Ford's new product launches have the potential to boost its earnings and share price moving forward. For example, in its most recent quarter, Ford announced that an all-new F-150 Raptor SuperCrew will be available in China in 2017. This is a high performance off-road pickup and could help to diversify and grow the brand in China, while Ford's launch of 16 new global products in 2015 and 12 new global products in 2016 also have the potential to boost its earnings in our view.
Notably, its Focus Electric could prove to be a key product for the company as it plans to invest $4.5 billion in the electrified vehicles solutions space through 2020. Allied to this is the planned delivery of 10 million vehicles in North America by 2020 which will be equipped with SYNC Connect built-in modems. This will provide an enhanced customer experience through the ability to lock, unlock, locate and start vehicles using a smartphone, which we think could help to boost customer interest in, and loyalty towards, Ford moving forward. As such, it may enjoy improved pricing potential which could have a positive impact on its profitability and act as a positive catalyst on its share price.
Ford's earnings and share price also could be boosted by its innovation. In 2016, Ford is tripling its fleet of Fusion Hybrid autonomous research vehicles, which will make its fleet of fully-autonomous vehicles the largest of all global automakers. Further, Ford is increasing autonomous testing in a range of conditions including snow (which no other automaker is doing), and in our view, this could put Ford ahead of the curve when it comes to autonomous vehicle technology.
Additionally, the major testing which Ford is undertaking of autonomous vehicles means that it may succeed in delivering a pragmatic solution in this space which is useable in a variety of conditions. In our view, this could provide Ford with a greater competitive advantage over its rivals and also enhance customer loyalty toward the company, which could have a positive impact on its margins and act as a positive catalyst on its bottom line and share price moving forward.
With US interest rates forecast to rise by just 25 basis points over the next year and by a further 150 basis points by 2020, we think that stocks with bright income prospects will become increasingly popular among investors. As such, with Ford yielding 5% versus 2.1% for the S&P 500, we think that increased investor demand for its income return will help to push its share price higher moving forward. Further, with Ford having a payout ratio of just 28%, we believe there is scope for its dividends to rise at a faster pace than profit moving forward.
One risk on the horizon for Ford is its international exposure. It remains a truly global automaker which generated 38% of sales from outside of the US in 2015. And with US interest rates expected to rise over the next year and through 2020, it could suffer from currency headwinds. The US dollar is expected to appreciate in value versus currencies such as the euro, sterling and a wider basket of currencies over the next twelve months and beyond, which would clearly hurt Ford's reported earnings numbers.
However, we think that Ford's impressive income prospects, the launch of new products, its innovation and the potential for it to become a transportation services business rather than pure play automaker will positively catalyse its earnings and share price moving forward. As such, this means that now is a perfect time to buy it.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.