Why You Should Buy 5.8%-Yielding Ford Motor
Summary
- Ford Motor shareholders had to put up with a lot lately.
- Shares fell to a new 52-week low @$10.14.
- Nevertheless, Ford Motor is in the bargain bin.
- Negative investor sentiment likely to persist for a while.
- An investment in F yields 5.8 percent.
Ford Motor (NYSE:F) continues to make an attractive value proposition at today's price point. Ford Motor's shares have come under pressure lately as stocks sold off, and the Trump administration announced tariffs on steel and aluminum products. Ford Motor also reported February U.S. sales results which negatively affected investor sentiment. Nonetheless, Ford Motor can best be seen as an income holding for the long haul. An investment in F yields 5.8 percent.
Ford Motor shareholders had to deal with a lot in the last four to five weeks. First, investors sold stocks into the weakness, driving share prices sharply lower. Fears over rising interest rates and surging bond yields are typically viewed hurdles for dividend-paying stocks as other asset classes become more attractive.
Secondly, the Trump administration said last week that it will impose steel and aluminum tariffs in an effort to protect domestic steel and aluminum producers. Tariffs tend to increase commodity and consumer prices, which is exactly what U.S. auto companies warned about on Friday.
Thirdly, Ford Motor released U.S. sales figures for the month of February that slightly missed analysts' estimates but nonetheless added to soured investor sentiment. The auto company said it sold 194,132 cars, trucks and SUVs in February, reflecting a 6.9 percent year-over-year decline. Analysts expected Ford Motor's February sales to decline 6.0 percent. Ford Motor's retail sales also declined, falling 8.5 percent to 123,073 vehicles.
That said, though, there were a couple of bright spots, too: Ford Motor's transaction prices remain well above industry average ($36,200 vs. $32,200). Transaction prices rose $2,100 for Ford Motor compared to February 2017. Further, Ford Motor's F Series continues to do well. The auto company sold 68,243 trucks in February, making last month the best February in terms of sales performance in 18 years.
All considered, though, it was not a good week for Ford Motor. Proposed steel and aluminum tariffs negatively affect U.S. auto companies that use a lot of steel and aluminum for their cars, trucks, and SUVs. Tariffs tend to lead to higher commodity prices which will surely inflate Ford Motor's costs in 2018 (the company has already warned of higher input costs earlier this year, though).
Hence, investor dumped Ford Motor last week, driving shares to a new 52-week low @$10.14.
Source: StockCharts
What To Do Now?
In my opinion, it would be a bad idea to now sell into the weakness. Ford Motor already warned of higher commodity costs when it released fourth quarter earnings earlier this year, and investors need time to judge the effects of the newly imposed steel and aluminum tariffs.
The February sales decline was not that big a deal as investors already expected last month's sales to drop. I think investors have again become way too bearish on the auto company, potentially providing an interesting entry window in the stock.
Thanks to the sell-off, Ford Motor's dividend yield has spiked.
F Dividend Yield (TTM) data by YCharts
Ford Motor is incredibly cheap again... too cheap, in my view.
F PE Ratio (Forward) data by YCharts
Your Takeaway
Ford Motor doesn't get much love right now, but the auto company looks like a good deal on the sell-off. Ford Motor is, first and foremost, a long-term income holding. I think the current sell-off is a reflection of overly bearish investor sentiment, which is always a good opportunity to take a closer look at an investment. Ford is an interesting long-term income play in my point of view. Speculative Buy for income and capital appreciation.
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This article was written by
Analyst’s Disclosure: I am/we are long F. 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.
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Comments (41)
Happy hunting!
I was disappointed when Ford closed down the Mercury division. Lincoln just cannot make it into the luxury market with its current models. Contrast Camry and Lexus models. Lincoln cannot muster quality within its brand. Too much spillover from Fusion models. Same happened with Mercury as a brand,,,,too much Ford vehicle spillover. Toyota, Honda and GM have many models to choose from.....Ford does not.
http://bit.ly/2FUAfLZ