Market Mad House

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

Long Ideas

Have Revenues Peaked at Ford?

U.S. auto sales might have peaked, revenues at Ford Motor (NYSE: F) indicate. Ford just reported falling revenues for two quarters straight.

Ford’s revenues fell by $3.8 billion in the six months that ended on December 31, 2016. The venerable automaker’s revenues peaked at $155.6 billion in June 2016; that number fell to $153.4 billion in September and $151.8 billion in December.

This indicates that Ford is either selling fewer vehicles or making less money from the vehicles it sold. Although the other financial numbers I found at ycharts indicate that Ford is still making a lot of money.

Ford is making a Lot of Money

Even as its revenues fall, Ford is still raking in a lot of cash from its business. Particularly the pickup truck sales, which can be compared to Apple’s (NASDAQ: AAPL) iPhone. That is an expensive, high-quality luxury product with a strong commuter market.

Some fourth quarter 2016 numbers that show just how lucrative Ford’s business is include:

  • $4.596 billion in net income.


  • $718 million in free cash flow.


  • Assets of $237.95 billion.

  • Cash and short-term investments of $38.83 billion


  • $7.458 billion in cash from financing.


  • $19.79 billion in cash from operations.


What’s most incredible is that Ford achieved all that with a negative profit margin of -2.03%. As I’ve said before Ford is a great company and a tremendous value investment.

It generated a lot of float which allowed for a dividend yield of 4.77% on February 17, 2017. That provided shareholders with a dividend of 20¢ a share on January 18, up from 15¢ a share on October 25, 2016. Although it was still half the 40¢ a share paid out on January 27, 2016.

Best of all, Ford investors took home a 15.32% return on income on December 31, 2016. That means they received $1.93 for every share of Ford Motor that they owned, which is obviously something to write home about.

Why Ford is more like Apple than you think

Ford has far more in common than Apple than you might think. Both companies were the creations of eccentric; but iconic, founders with cult followings. Apple was created by Silicon Valley maverick Steve Jobs. Ford by Henry Ford who was even crazier than Jobs was in some ways.

More importantly, Ford like Apple has shown a willingness to invest in new technologies and develop new markets rather than rest on its laurels. Just as Jobs was willing to take risks on smartphones and music rather than sit back and rake in declining profits from computers. Ford is making massive investments in next generation transportation technologies.

The automaker just sunk $1 billion into an artificial intelligence start up called Argo AI. The purpose of Argo AI is to develop the operating systems for self-driving cars.

Argo is only the latest move Ford has made in that direction, it has also bought the Israeli machine learning company SAIPS, the 3-D mapping firm Civil Maps and the ride sharing solution Chariot. Beyond that Ford has opened a campus in Silicon Valley and is repurposing its glass house headquarters in Dearborn, Michigan, into a high-tech campus.

Nor is it just autonomous car technology Ford is into. The company’s CEO Mark Fields wants to invest $4.5 billion in electric-car development and bring out 13 electric models by 2020.

All this puts Ford at the cutting edge of the auto industry and it can stay there because of the cash it is generating. Ford can afford to invest so much in research and development because of all the money it has in the bank; the $38.83 billion in cash and short-term investments.

Apple just like Ford also has a lot of cash $60.45 billion in the bank on December 31, 2016. That gives it a lot of money to spend on research and development, including the fabled Apple Car.

Another similarity is that all the research and development spending will give Ford a lot of potential value in the future. For example in intellectual property (patents) and software it can sell to other automakers or even industries.

There’s also the dividend Apple shareholders received a 57¢ dividend on February 16, 2017. Apple like Ford can pay a good dividend because it has a lot of cash.

Why Ford Might be better than Apple

Ford might be a better stock than Apple for a number of reasons. First there is the price Apple was trading at $135.72 a share on February 17, 2016, Ford was trading at $12.58 a share on the same day.

That means you could have bought almost 11 shares of Ford for one share of Apple. Ford also had a much higher dividend yield than Apple, 4.77% vs. 1.68% on February 17. Although Apple had a much better return on equity of 35%, to Ford’s 15.32%.

If you’re looking for a value in technology and consumer goods check out Ford. It has a great business that generates a lot of cash and a low stock price. More importantly Ford has a far-sighted management team that’s making smart investments that might pay off big time in the future.

That makes Ford a tremendous value investment that everybody looking for stock bargains should take a very close look at.

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