For the past few weeks, I’ve kept hearing about Ford (F) stock. Since February 15th, the stock is up almost 16%. However, since this time last year, it’s down nearly 20%. I decided to take a look at the details to figure out if it’s worth your time (and money).
I like Ford. It has an incredibly strong brand. In the marketplace, perception is reality, which means that a strong brand can create significant value for a company. Branding is so powerful that it can give a company a “halo effect”. Think of Coke; do you know someone who will never stray from Coke, and absolutely abhors Pepsi? If a consumer deeply identifies with a brand image, price becomes more inelastic, increasing profit margins and significantly boosting the bottom line.
According to Consumer Reports’ 2014 Car-Brand Perception Survey, Ford had the 2nd best overall brand perception of all automakers. Toyota was the best, Land Rover was the worst.
The companies were ranked on quality, safety, performance, value, fuel economy, design/style, and technology/innovation. Ford ranking this high in a consumer perception survey is extremely impressive to me. This means that word-of-mouth marketing and end-customer experience are both powerful tools for Ford.
If you’ve ever read any of my work, you know that I love dividend stocks. Right now Ford’s dividend hovers around 4.5%, which is great. Ford has been increasing its dividend since 2012, so locking in now at current prices might be a good idea.
Ford is one of those companies that I like to pick up in market downturns. Not just because of the dividend, but because American automotive companies are closely linked to consumer confidence. When the general stock market falls, risk aversion negatively affects Ford’s stock price. From the beginning of the year to its low on February 11th, the S&P was down 9.12%. Ford also had a recent low on February 11th. From the beginning of the year (January 4th) to February 11th, Ford stock was down 20.04%. Both the S&P and Ford have recovered since then, and in step with one another.
Speaking of ups and downs, of my biggest concerns is the automotive sales cycle. In 2015, car companies achieved record sales. Combine that with the Fed possibly considering another rate hike, it’s highly unlikely that demand will be stimulated enough to keep the cycle peaking.
Another one of my concerns is the intense competition within the auto industry. Toyota is the world’s best-selling automaker and ranks extremely high in consumer confidence. Remember that Consumer Reports study I mentioned earlier? Ford was in second place because Toyota was in first.
On top of that,Tesla will soon launch its Model III, which will be available for $35,000. The move towards a more affordable Tesla has been forecasted as being everything from a massive success to an epic failure. I personally think it will be a success since it has more mass-market appeal. Critics have told me that there are already cheap electric cars in the marketplace, but nobody is buying them in large enough numbers. To that, I point out brand strength once more. Tesla has positioned its vehicles in the marketplace as trendy, sexy, and must-have cars for affluent customers. Tesla’s success could potentially eat away at Ford’s car market share. Not so much for trucks, but the competition is enough to be acknowledged.
The fundamentals seem okay. The P/E is 7.2, while the industry average is 9.5. The P/B is 1.8, and the industry average is 1.3. Ford has a debt/equity of 3.1, while the auto industry as a whole has debt equal to equity.
Do I own Ford stock? Not yet, but it’s definitely on my watch list. If we have another market correction or a bear market, I will be watching Ford. If the auto sales cycle goes into a downturn and we have a correction/bear market, it could drive Ford stock to irrationally low prices. And that’s when I’ll be buying.
Disclosure: This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.