Ford (NYSE:F) has some good things going for it: a low stock valuation and an offering of hybrids and electric vehicles that can help drive strong sales during a period of high fuel prices. Inventory levels which have been low due to supply chain issues are expected to improve in 2022. The stock's technicals are also indicating that a recovery is underway for Ford.
One of the main issues that have been negatively affecting Ford and the other automakers has been the shortage of semiconductor chips and other parts such as plastic and glass holding up production. This led to production cuts and inventories being reduced by about 60% from 2018 levels. Just look at any dealer lot and you can see many empty spots that new cars used to fill back in pre-pandemic times.
The good news is that the supply chain issues may ease in the second half of 2022. Inventories will most likely remain lower than normal. However, the pace of sales is expected to pick up in the second half of 2022 as production ramps up.
One thing that Ford is doing to improve its long-term position in the auto supply chain is partnering with U.S. chip manufacturer, GlobalFoundries (GFS). Ford's partnership with GFS is to be a strategic way to address the supply chain issue regarding semiconductor availability. Both companies are committed to restore a supply/demand balance for the semiconductors that are needed in vehicles.
The supply chain is expected to improve further in 2023. This can allow for more vehicle production and increased sales.
The increase in gasoline prices can make Ford's hybrid and electric vehicle offerings more attractive. Ford has a wide variety of these types of vehicles. Here are some examples of Ford's hybrids and EVs: Mustang Mach E, Escape Hybrid, Escape Plug-In Hybrid, F150 Lightning, Maverick Hybrid, and the E-Transit van.
Hybrids can be attractive for those who want better gas mileage and for those who don't want to worry about range anxiety. Electric vehicles can attract those who have places to charge up whether at home or at network charging stations and those with reasonable commute distances.
As an example, the internal combustion engine [ICE] model of the Ford F150 can hold up to 26 gallons of gas which can cost over $100 to fill up with the price per gallon over $4. However, the F150 Lightning EV is estimated to cost $13.91 to charge a standard-range 98 kWh battery at home or $18.59 for extended-range batteries.
Keep in mind that the cost of electricity varies by state. Even those in Hawaii (the most expensive state for electricity at 35.57 cents per kWh) would spend about $35 to charge up an F150 EV vs. about $117 to fill the ICE version with gasoline. Also, factoring in no need for oil changes, replacing mufflers/tail pipes, O2 sensors, etc., it is easy to see the cost savings.
The rising price of oil and gasoline can lead many consumers to take a closer look in considering hybrids and electric vehicles for their next vehicle purchase. Ford has a decent variety of models to choose from for various use cases.
Ford is trading with a bargain valuation with a trailing PE of about 9 and a forward PE of 7.8. It's not too common to find profitable companies with PE ratios below 10 in this market. These metrics also showcase the company's low valuation: PEG ratio of 0.11, price to sales of 0.47, and price to cash flow of about 4. Ford is trading lower than the Auto Manufacturing industry which has a trailing PE of 18, forward PE of 32, PEG of 0.81, price to sales of 0.44, and price to cash flow of 7.
Of course, Ford had its challenges with the COVID-related supply chain woes for the past few years. The company's revenue did not yet return to its pre-pandemic level of $143.6 billion from 2019. Revenue for 2021 fell short of that level to hit $126 billion. Despite the near-term challenges, the future looks bright if the supply chain does improve as expected going forward.
The stock chart above shows that Ford has bounced higher from an oversold condition on the RSI. The green MACD line began to show a change in trend since it rose above the red signal line, but then dropped to about the same level as the signal line. The money flow [CMF] has been whipsawing back and forth during this market volatility. If the price can sustain a move above the 200 day moving average, it would indicate that bulls have the upper hand.
The key thing that I see is the bullish divergence between the stock price and the RSI/MACD. The stock price declined from the beginning of February to now. However, the RSI and MACD have been increasing over that same time. This is considered bullish divergence, indicating that the stock price may move higher.
Research shows that stocks that are rated as a strong buy in Seeking Alpha's quant metrics tend to significantly outperform the S&P 500.
Ford happens to be one of those SA stocks that have a strong buy for the Quant ratings.
The factor grades to the right show what the Quant ratings are composed of. Ford is rated high in each category, giving the stock a strong likelihood for future increases. It is important to note that SA Authors and Wall Street are also viewing the company positively with overall buy ratings.
Ford does face some risks with the fragile supply chain still in the process of improving. Forecasts for the supply chain to improve could take longer than expected. Of course, the war in Ukraine presents some uncertainties for the future of the stock market and global economy as high fuel prices could slow the economy. If the economy weakens, vehicle sales could slow down.
Despite the risks, Ford looks strong if we look at least one to two years ahead. The valuation is sitting at bargain levels. The company is expected to grow revenue at about 16% and earnings at about 30% in 2022 (consensus). Double-digit growth rates are expected to continue in 2023.
The strong growth can be supported by the expected improvements in the supply chain over the next couple of years. The current high fuel prices can stimulate sales for Ford's hybrid and EV offerings. Overall, Ford's stock has a good chance to outperform the broader market over the next 2 years.
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This article was written by
Through diligent analysis, he is ranked in the top 1% of blogging analysts on Tipranks.com for performance and accuracy. David previously contributed to Kirk Spano's Margin of Safety Investing [MoSI] Marketplace Service and Risk Research Inc.
David focuses on growth & momentum stocks that are reasonably priced and likely to outperform the market over the long-term. He is a long term investor of quality stocks and uses options for strategy.
David told investors to buy in March 2009 at the bottom of the financial crisis. The S&P 500 increased 367% and the Nasdaq increased 685% from 2009 through 2019.
He wants to help make people money by investing in high-quality growth stocks.
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.
Additional disclosure: The article is for informational purposes only (not a solicitation or recommendation to buy or sell stocks). David is not a registered investment adviser. Investors should do their own research or consult a financial adviser to determine what investments are appropriate for their individual situation. This article expresses my opinions and I cannot guarantee that the information/results will be accurate. Investing in stocks involves risk and could result in losses.