Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Is Ford (F) the biggest value investment in the Market?

Strangely, the historic automaker Ford (F) could be the biggest value investment in today’s stock market.

Mr. Market paid $6.91 a share for Ford (NYSE: F) on 27 August 2020. Yet Ford reported a quarterly net income of $1.118 billion and a quarterly operating cash flow of $9.115 billion on 30 June 2020.

Moreover, Ford reported a quarterly ending cash flow of $5.021 billion and a quarterly financing cash flow of $6.937 billion on 30 June 2020. In addition, the Ford Motor Company (NYSE: F) reported a quarterly ending cash flow of $26.160 billion, and a quarterly financing cash flow of $12.254 billion on 31 March 2020.  

Ford is a Cash-Rich Company

Impressively, Ford reported $57.13 billion in cash and short-term investments on 30 June 2020. That number rose from $46.37 billion on 31 March 2020 and $34.651 billion on 31 December 2019.

Thus, Ford is a cash-rich company with shares that traded at $6.91  on 27 August 2020. For instance, Ford reported $269.366 billion in total assets on 30 June 2020.

Beyond cash, Ford reported quarterly revenues of $19.371 billion and a quarterly gross profit of $1.439 billion on 30 June 2020. However, the quarterly revenues fell from $34.32 billion on 31 March 2020. Plus, the quarterly gross profit fell from $3.978 billion on the same day.

Ford’s Revenues are shrinking

Thus, Ford’s revenues are shrinking. In fact, Stockrow estimates Ford’s revenues shrank by 50.14% in the quarter ending on 30 June 2020. Moreover, Ford’s revenues have shrunk for the last five quarters.

In addition, Ford itself admits its total sales fell by -33.3% in and its retail sales fell by Second Quarter 2020. Additionally, Ford’s total Truck sales by 26.6%, Ford’s total SUV sales fell by 151,328%, and Ford’s total car sales fell by 59.5% in 2nd Quarter 2020.*

Ford (F) quarterly revenues fell from $38.853 billion 30 June 2019 to $19.371 billion on 30 June 2020. Thus, Ford’s capability to make money by selling vehicles is falling.

Notably, Ford reported a -$2.759 billion quarterly operating loss on 30 June 2020. Moreover, Ford has reported an operating loss for the past quarters. For instance, the quarterly operating loss grew from -$261 million on 30 September 2019 to -$1.558 billion on 31 March 2020.

Therefore, Ford is losing money from its operations. Conversely, Ford generates enormous amounts of cash from those operations.

What Sort of Investment is Ford?

I classify Ford (NYSE: F) as a declining value investment. To explain, Ford is a cash-rich moneymaker, however Ford’s business is in decline.

For example, Ford’s US vehicle sales fell from 583,000 in first quarter 2019 to 515,000 in first quarter 2020, Statista estimates. In Ford’s brand sales fell by 12% between 1st Quarter 2019 to 1st Quarter 2020. In comparison, overall vehicle sales fell by 38% in the United States in March 2020.

Coronavirus has hit Ford and other automakers hard. Moreover, I think the way coronavirus is changing work could harm automakers.

To explain, enormous numbers of people are working from home. Hence, those people are not commuting by auto so they could have less need for a car or a newer car.

Can Ford Make Money in the Future?

Moreover, many of those workers will never return to the office. For instance, The Partnership for New York City estimates only 8% of remote-working New Yorkers had returned to the office on 14 August 2020.

Thus, demand for vehicles could take a dramatic fall in the next few years. However, I think Ford has the cash to survive that fall. In addition, Ford is investing in new technologies including autonomous vehicles and electric trucks that could add profits.

Additionally, Ford could invest in new markets such as ridesharing and the sale of transportation data. Remember, some people consider data the oil of the 21st of Century. Ford could make money by selling data its vehicles gather.

On the other hand, it will take years or decades of work and enormous amounts of cash to make those new technologies work. However, Ford, like Tesla (NASDAQ: TSLA) has that cash.

The Ford Dividend

Ford (NYSE: F) paid a 15₵ quarterly dividend on 2 March 2020. Thus, Ford offered a 60₵ yearly dividend and an 8.765% dividend yield on 27 August 2020.

In the final analysis, I consider Ford a value investment with a high margin of safety and a cheap price because of all the cash it dividends. If you want a cheap cash rich stock, Ford could be the best value investment in today’s stock market. However, Ford could be a company with limited growth prospects and market collapse in its future. So be careful with Ford.