As a rule, I do not like auto stocks, because they tend to be both volatile and overpriced—think Tesla Motors (TSLA). Yet there is one carmaker that intrigues me: Ford Motor (NYSE: F).
Ford holds two obvious fascinations for me as a value investor. First, it is very cheap—its shares were trading at $15.90 at the close of business on April 7, 2015—and secondly it has a lot of cash.
Ford reported a TTM revenue of $144.08 billion and a net income of $3.187 billion on Dec. 31, 2014. That’s not bad for a company that was viewed as an economic basket case in a dying industry that was in deep need of a government bail just seven years ago.
Ford seems to have some great value attributes similar to a classic Buffett buy, such as Bank of America (NYSE: BAC). It has a good business, strong sales and strong cash flow even though it does badly in the market. It reported a diluted EPS of $.0783 on Dec. 31, 2014, yet it also had a return of equity of 12.20% and delivered a dividend yield of 3.77% to investors.
Like B of A, Ford seems to be a pretty good company that the market does not like—in other words, a classic value play. Yet it is also operating in a very volatile industry; it reported a year to year TTM revenue growth rate of -4.52% on Dec. 31, 2014. Ford’s TTM revenue fell from $146.92 billion on December 31, 2013, to $144.08, a decline of $2.84 billion in a year.
Ford is committing what Benjamin Graham would have called an unforgivable sin; it is losing money. Naturally, some people will have to ask, what about its future prospects?
Ford Is a Very Strong Brand
Well, Ford’s basic business is very good; a company press release from Jan. 2015 presents some numbers investors with some food for thought. A few numbers that show Ford has a bright future include:
- Ford has been America’s best-selling vehicle brand for five straight years. Ford is still a great brand.
- Ford’s F Series pickup has been the bestselling truck in the USA for 38 straight years and the bestselling vehicle in America for 33 years in a row.
- Ford sold 2,480,942 million vehicles in 2014.
- Ford sold 306,860 of its popular Fusion sedan in 2014.
- Ford sold 753,851 F Series in 2014.
- Ford sold 10,030 of its popular Transit van and 5,012 of its smaller Transit Connect van in December 2014.
Ford also has a strong business in China; Ford’s Chinese vehicle sales in the first quarter of 2015 were 9% higher than they were in the same time period in 2014, Reuters reported. Ford also sold 296,825 vehicles in China during the first quarter of 2015.
My take is that Ford would be a very good buy and hold play right now. It has a strong brand, great dividends and a good return on equity. It still has some serious problems, including a lot of exposure to a very sick European auto market.
Another reason I like Ford is that it is selling a product that people need and are willing to pay for: cars. It is not as sexy as Tesla or as big as Toyota (NYSE: TMC), but Ford has a lot of potential. In particular, it has been able to beat Volkswagen at its own game by selling a sedan, which is tough.
If you are looking for a cheap value stock to hold for a long time, check into Ford; it is a really good company that Mr. Market does not like. This carmaker also has some of the attributes that Mr. Buffett likes, including a very nice dividend and a lot of float. Ford has float because most of the cars it sells are financed, and it provides some of the finance.
Finally, Ford has figured out how to build and sell the vehicles that the average American or Canadian wants to buy. The Transit Connect, F-150 and Fusion may not impress the hipsters or the Silicon Valley crowd much, but they sell well on Main Street, and that’s what counts at the end of the day.