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I’ve very gently avoided investing in Ford for a couple of years now. But for the first time in a long time, I think I’m ready to claim Ford is a buy.
I feel like for almost 2 decades Ford (F) has sort of been in hibernation. They haven’t really done anything all that impressive. They released a couple of Rangers, I mean that was cool. And the current F150, which is also a cool car. But I mean we’ve had those cars ever since the mid-20th century. They were sort of just being modernised but have always been there. The Ford of the future though is looking very different from post-year-2000 Ford.
I’m so confident that Ford is changing that for the first time in a long time and despite just being a penny stock (trading at $7.6USD overnight), I’m ready to say I bought Ford shares. Which I did. I bought Ford shares. And don’t let this discredit your opinion of me. I have some good reasons for my Ford buy.
THE RIVIAN MERGER
It’s not really a merger in the classic sense of the word. Ford bought part of Rivian a little while back. And back when Ford did it? It meant nothing. Rivian was an unproven EV startup like a million others popping up around the world. They wanted to compete with Tesla but Tesla was decades ahead. Elon Musk was so amused by Rivian that he made the Cybertruck. It was almost a “f**k you” to many other EV startups who were trying to delve into light commercial vehicles.
But alas, I think Musk has called this one wrongly. Because Rivian hasn’t just designed a gorgeous looking, well-specified, Ford supported luxury pickup called the R1T. The truck actually works as well. I wrote an article most recently about Rivian’s partnership with the Apple TV+ series starring Ewan McGregor and Charlie Boorman called The Long Way Up, where two R1T’s are driven from the southern tip of South America across deserts and mountains all the way to Los Angeles. Now considering those cars were just prototypes and South America isn’t exactly the EV capital of the world that’s a huge feat.
Rivian is also important for Ford’s own vehicle lineup. It’s most recently been reported that while the R1T is now production read, Rivian’s research and development team have moved on to helping Ford produce an electric F150. A car which is said to be revealed mid-next year. That’s another big plus for Ford, they bought reliable, efficient and working EV technology instead of spending billions of dollars on doing it themselves.
IT’S US ELECTION PROOF
Let me just be clear about that statement. No stock is properly US election proof. However, some are far more resistant to election results than others. Ford have put themselves in a position where they are very stringently resistant to US election results. There are a couple of ways that they’ve done this.
The first is being balls deep in EV research and production. The Mustang Mach E was the first proper Ford foray into electric vehicles but the company are working on hybrid vehicles across the range and are adding vehicles like the F150 electric and a Mondeo electric to their range. Those are huge plusses for a Joe Biden election win. The democrats have been very open about how they feel about climate change and about the sort of stimulus they’ll provide to kick sustainable solutions up the ass and get that environmental economy moving.
Equally though, Ford also have killer fuel vehicles on range that benefit from a Trump campaign win. Vehicles like the bestselling F150 petrol (or gas if you’re American) and diesel models, the All-new Ford Bronco (which is essentially sold out for years) and the 2020 Ranger (along with the newly announced FX4 Offroad package and the Australian counterpart the FX4 Max model). All of these cars are bestsellers in segment and all in different markets as well. That’s only happened in the past two years. Prior to that the only bestselling vehicle Ford had on range was the F150 and it was only bestselling truck in America.
THE WORLD IS LINING UP AGAINST CHINA
EVERYTIME SOMEONE SAYS CHINA IN THE WEST ALL YOU THINK ABOUT IS CORONAVIRUS, TRADE WAR AND HONG KONG.
Automotive was in a very different place 12 months ago. We were all-embracing China’s newfound automotive prowess with vehicles such as the Volvo XC40 and XC60. And concepts such as MG’s electric sports car which is still yet to break cover.
Today though, everytime someone says China in the west all you think about is Coronavirus, trade war and Hong Kong. I’d like to add that this isn’t a declaration of war against China. China in totality is fantastic. The contributions that China makes to the world economy and their own research and development on a global scale is irrefutable. However, there have been a couple of missteps in the past 12 months. One of which created an economic catastrophe and health crisis. And that makes the world begin to consider whether the positives of trading with China outweigh the negatives.
Ford however benefits from this trade war greatly. It stops stock supply of the bottomless pit that is Chinese vehicle importation and it puts a massive spanner in Tesla’s works (who have recently opened a factory in China). It also benefits from China’s image problem with many Americans flocking back to American or European cars and many westerners in general following suit.
IT’S A CORONAVIRUS DEFENSIVE STOCK
It’s also equally a COVID19 benefactor. Ironically it’s just an all round winner for COVID19. There are a couple of reasons for that and a few more for why you haven’t seen it reflected in earnings or the stock value just yet.
The first is stimulus. There’s been a lot of research to prove that the buyer journey for car buyers in length is somewhere from 6-10 months. So while we saw an instant jolt in result for fast items after the initial American, European and Australian stimulus packages were introduced in April. Vehicles are a much slower burn. Stimulus has and will help customers get in those cars though.
The second is worldwide travel bans. I talked about these in my most recent Ferrari article as a reason for being bullish in the luxury automotive segment. I’m also invested long in Ferrari currently. Travel bans though effect world consumer spending all the same way though. Everyone can’t get on a plane so they get a car instead. The travel bans will also be the last COVID19 measure to be removed once the virus is over, meaning that the economy will have time to recover and additional income will be sitting on the sidelines before the travel sector can take advantage of that cash.
The third is lockdowns in the initial stages of COVID19 prevented both stock importation and delivery of vehicles. That meant there was a full 3 month gap where vehicle sales results were significantly down on previous years. Now considering COVID19 hasn’t effected the middle-class and upper-class car buyer a massive amount this means those sales have been pushed back to the normal end of year sales and fast start 2021 sales. I’d be confident in saying that with cash in their pockets, the inability to spend in on travel and the need to buy a vehicle that this can only bode well for Ford’s sales results.
THE BOTTOM LINE
And it very much is the bottom line. Ford stocks are penny stocks. They sell for very little right now but the company is getting closer to turning a decent profit and most recently reported a $0.28 EPS in June. So the company is strong. It means that when you take environmental factors into consideration the company has a very large upside.
Price targets from analysts put the companies value at somewhere between $8USD and $10USD with hold calls outweighing buy right now. But Jim Cramer has predicted the stock to head to double figures in the early new year. This is backed by financial research heavyweight Zacks who rate Ford currently at a level 1 – strong buy. Zacks also rate it in the top 18% of all automotive currently in growth.
With all of this in mind, all automotive is predicted to grow over the next 12 months. I think what you need to be looking at in your portfolio is which company is going to take advantage of that growth better, and considering Ford’s share price, strategy and current acquisitions I’d happily say that company right now is Ford.