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F stock has multiple, strong macro and company-level catalysts
By Larry Ramer, InvestorPlace Contributor Dec 3, 2020, 8:55 am EST
Ford’s (NYSE:F) strong third-quarter results show that it is benefiting from positive macro trends and powerful demand for its vehicles. Meanwhile, the automaker has multiple, very promising initiatives and a few high-potential upcoming new vehicles. Finally, the valuation of Ford stock remains low. Given these points, I remain bullish on the shares at this point.
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Ford’s Q3 earnings were quite impressive. The company reported Q3 earnings per share of 65 cents, versus analysts’ average estimate of just 18 cents.
Its earnings before interest and taxes, excluding certain items, came in at $3.6 billion, versus the mean estimate of $1.53 billion. Further, the company’s automotive revenue actually increased 2.3% versus the same period a year earlier.
Ford’s new CEO, Jim Farley, attributed the company’s much stronger-than-expected Q3 results primarily to its decision, made two years ago, to focus on its commercial trucks and pickup trucks. Another factor was strong demand for the automaker’s new vehicles, Farley said.
I believe, however, that positive macro trends I’ve cited in the past played a major role in the company’s success in Q3.
Specifically, the coronavirus pandemic has led many around the world to switch from using mass transit for transportation to buying their own vehicles, while the exodus from cities to suburbs in the U.S. has led millions of Americans to rely much more than previously on private vehicles.
A Closer Look at Ford Stock
Although these trends are likely to ease meaningfully after vaccines for the coronavirus are introduced, they should continue to result in stronger demand for automobiles than seen before the pandemic. Combine that with powerful, positive macro economic trends and surging travel after the vaccines are given to the general population in the spring, and it’s easy to see that Ford will be very well-positioned to deliver great results starting in Q2 of 2021.
Ford plans to launch an electric version of its highly popular F150 pickup truck starting in 2022, the company’s President of Americas and International Markets Group, Kumar Galhotra, said on a conference call on Nov. 19.
Particularly if oil prices climb meaningfully by then, which I expect to be the case, the electric F150, amid the increasing popularity of electric vehicles (EVs), should attract very strong demand.
Further, many companies and consumers, in an effort to reduce their carbon footprints, could buy electric F150s. And the automaker intends to launch a hybrid-electric version of the F150 very soon. Companies and consumers looking to become more green are likely to purchase a meaningful number of these trucks.
Looking to the Future
Also likely to generate strong sales among companies seeking to boost their environmental credentials will be an electric version of the Ford Transit cargo van, also due to be launched in 2022. With e-commerce and food delivery becoming extremely popular, Ford should be able to sell a huge number of electric Transits to such firms.
Additionally, the automaker intends to launch its “Active Drive Assist” offering in 2021 F150 trucks and its electric Mustang Mach-E. According to the automaker, the system will ” provide real-time hands-free driving opportunities and enable the addition of more such zones in the future.”
Planning to introduce the system as a relatively low-cost option on standard vehicles and “as a standard feature on premium versions of those models,” Ford should be able to generate a meaningful amount of revenue from the system.
Further, Galhotra reported that Ford will “offer {a} holistic ecosystem of digital productivity solutions, solutions that actually drive loyalty and recurring revenue streams for us.” And, as I noted recently, I’ve long believed that a great deal of money can be made with such systems, and Morgan Stanley has agreed with that premise.
Additionally, as I pointed out in my previous article on Ford stock, “The early reviews of Ford’s upcoming new Bronco, Mustang Mach E, and F-150 appear {ed} to be largely positive.”
I remain upbeat on the outlook of those new, upcoming vehicles.
Valuation and the Bottom Line on Ford Stock
The shares are trading at a tiny forward price-earnings ratio of 8.2 and an even smaller trailing price-sales ratio of 0.27. That’s despite the fact that Ford is meaningfully entering the EV sector for the first time, and many EV makers are trading for huge valuations at this point.
Given the automaker’s high number of strong, upcoming, positive catalysts and the low valuation of Ford stock, I recommend that investors buy the shares.