<p>Ford Motor Company (NYSE: F) shares are currently trading at a ten-year low. It is tempting to blame the decline on the latest broad weakness in the market. After all, F-shares have lost more than a third of their value since February.
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To be sure, the coronavirus-controlled marketing routine is a factor. Vehicle stocks fall across the board.
At the time of writing, Tesla (NASDAQ: TSLA) has fallen more than 30% since mid-February. General Motors (NYSE: GM) shares have fallen off the table and have fallen more than 20% in less than a month, hitting a seven-year low. Toyota (NYSE: TM), Honda (NYSE: HMC) and Fiat Chrysler (NYSE: FCAU) are also fighting.
But it is not as if the F share erupted before this sale. The shares reached a nine-year level at the end of 2018. They threatened these levels after the fourth quarter results last month. Ford shares have gone in the wrong direction since 2014.
There were core issues behind the long downturn that have only been exacerbated by recent developments. I have generally been bullish on F-stocks below $ 10, as I thought it might address some of these issues. I still think the stock is probably a buy because it is now trading below $ 6.
But Ford stocks will not surpass their peers, or even necessarily rally, until Ford itself gives investors an important reason to go into the downturn. The last five years show that a cheap valuation and a high dividend yield are not enough.
The cyclical problem
It is tempting to argue that the Ford stock is not much different at $ 6 in mid-March than it was at $ 8.31 after the Q4 result in early February. That is not necessarily the case.
After all, car manufacturers are among the most cyclical companies on earth. And even if the coronavirus scare fades, the economic effect will linger. Morgan Stanley analyst Adam Jonas now estimates that U.S. car sales across the industry will decline by 9% by 2020. It comes amid long-standing fears of “peak auto” when cars last longer and services like Uber (NYSE: UBER) lower urban. demand.
At least the recession risk increases. In that context, the declines in Ford shares and other carmakers make sense – even if the coronavirus scare is a short-term blip.
Can F-bearings surpass?
In the short term, F shares also have a long-term problem. It is simply not enough with a bull fall here other than the stock is cheap and the dividend, which now gives almost 10%, is high.
That bullfight has not worked in this market and still has not. Energy and retail inventories were cheap in December and have still been among the worst in this sale. And it has not worked for Ford shares either.
Here, too, the cyclical nature of the company is a factor. Cyclics in theory should be cheap at the end of an economic cycle. There is a reasonable debate about whether the share should be quite cheap: F-share trades less than six times the midpoint of 2020 adjusted earnings per share. But it is not as if the F share will be traded 20 times or even 12 times EPS at this point in the macro cycle.
To be sure, “too cheap” can be a reasonable bull drop right now. If the fear of coronavirus and a subsequent recession fades, the F stock is likely to receive a bid. But so do the market and the sector.
Again, other car manufacturers have also fallen. GM shares are even cheaper until 2020 and are traded at 4.3 times the current consensus EPS estimate.
So an investor can not just argue that this sale is excessive, and therefore Ford shares are a purchase. She must believe that Ford shares are a better buy than GM or TSLA or other automatic names. Right now it’s a tough case to make.
A need to differentiate
The problem on that front is that Ford has simply not differentiated. It has made some progress towards autonomous vehicles but there is little evidence that it is a leader. It brings hybrid and electric vehicles to market, but GM just last week unveiled a new battery and EV platform with about $ 20 billion in expenses.
There is a shorthand case for almost all other car stocks. Tesla is a leader in electric vehicles and a company that bulls believe has decades of growth ahead. GM has a share price that is cheap now, which means that its potential success in EV is not priced.
Honda and Toyota have succeeded for decades through all possible environments. Foreign manufacturers such as Volkswagen (OTCMKTS: VWAGY) and BMW (OTCMKTS: BMWYY) also operate at least close to the forefront of electric vehicle development.
Where’s Ford? It is now almost exclusively dependent on gas-powered trucks and SUVs after removing sedans from its range. It operates in the back of electric and autonomous vehicles. The balance sheet is OK but pension liabilities are a problem.
Put another way, F-stock is cheap but seems to have little else to do. It has not been enough for about six years now. That will probably not be enough in the future.
Ford needs to give investors a reason to get excited. Until it does, F stocks can catch a bounce here or there. But it will probably not surpass the market and it will certainly not surpass its industry.
Vince Martin has been covering the financial industry for nearly a decade for InvestorPlace.com and other stores. He has no positions in any of the mentioned securities.