Value stocks are shares in firms selling at low multiples relative to their earnings or potential growth. Ford Motor fits into this category, especially with its electric-vehicle gaining steam. Let’s explore the reasons why this old automaker might make an excellent investment.
Ford has high hopes for the EV opportunity in the United States, which will aid in supporting long-term growth in its home market. Management believes industry-wide electrification of 33% and 70% in the pickup and van sectors by 2030. And the firm intends to invest more than $30 billion in the next several years to get a 40% global EV foothold by 2030.
So far this year, Ford’s numbers are helping them reach these high hopes. In July, the company’s EV sales climbed 58% to 9,103 cars — driven by the Mustang Mach-E and the F-150 PowerBoost Hybrid, which was unveiled recently. According to CEO Jim Farley, Ford will focus on auto sectors where it already has dominant brands (transit vans, pickup trucks, and the Mustang sports car). This strategy goes well with Ford’s goal to streamline its operations, which led it to leave the United States sedan market and lay off thousands of workers in the past few of years.
Ford’s EV future is good. But as of July, traditional vehicles still represent nearly 92% of sales volume, and consumer demand is strong even with the semiconductor-chip shortage. Ford is also getting benefit from the pandemic last year.
Q2 revenue climbed 38% y/y to $26.8 billion as covid-related headwinds faded. Ford also reported an adjusted earnings before taxes and interest of $1.1 billion — up $3 billion from the prior-year time as Ford Credit earnings helped to offset its losses in auto manufacturing.
An unbeatable value
With a forward p/e multiple of around eight, Ford’s value is very low compared to Tesla, the current EV leader, which trades for around 125 times earnings. Unlike Tesla, Ford is a slow-moving company with operations that are dominated still by traditional vehicles.
Over the long term though, Ford’s EV work might boost its top-line growth and cause an upward reevaluation of what the firm is really worth.
Author: Steven Sinclaire