Considering the Current Price Dip, Is Ford Worth Investing Under $10?
As of December 30, 2024, the S&P 500 has delivered a spectacular 27% return for investors this year. However, not all stocks have participated in the rally. Ford Motor Company (F), the renowned automotive giant, has struggled, posting a dismal 12% loss for shareholders. With Ford's stock trading at around $10, should you jump on the bandwagon and invest now?
Let's break down the pros and cons of investing in this legendary automaker.
Ford's Bullish Case
Pro Segment Shines
Ford's commercial vehicles division, Pro, has been a shining star this year. Revenue increased by 13% year-over-year during the third quarter of 2024, with an impressive 11.6% operating margin. This is a significant improvement compared to Ford's overall operating margin of 1.9%.
Dividend Yield
Ford's generous dividend has been a boon for income investors, with a current yield of 6.04%. The company's history of stable profits allows it to consistently return capital to shareholders.
Potential Risks and Concerns
Disappointing EV Segment
The auto industry's ongoing shift towards electric vehicles (EVs) has not been kind to Ford. The company managed to rack up a worrying $3.7 billion operating loss in its Model e EV segment in the past nine months. This subpar performance is a significant concern for investors.
Lack of Economic Moat
Competition in the automotive industry is fierce, with numerous powerful brands vying for market share. Ford falls short in this regard, as it struggles to differentiate itself from its competitors. The company's average return on invested capital in the past five years was just 2.2%, well below the S&P 500's 10% average.
Weak Financial Metrics
Ford's financial performance has been lackluster. The company's revenue growth has been slow, with its 2023 revenue only 20% higher than ten years prior. Additionally, Ford's operating margin has languished at just 1.5%, failing to expand despite its size and resources.
Inefficiencies in areas such as research and development, labor, and commodities expenses have made it challenging for Ford to gain a competitive edge. This has resulted in a massive financial burden that the company has struggled to manage effectively.
Uncertain Future and Conclusion
Ford shares have plummeted by 73% from their peak. However, the future is not set in stone. As the company works to overcome its challenges and navigate the changing automotive landscape, long-term investors might want to exercise caution before making a purchase decision.
- Considering Ford's financial situation, the performance of its commercial vehicles division, Pro, could be a compelling factor for investors who are considering investing in the company's stock in 2024.
- The high dividend yield of 6.04% offered by Ford makes it an attractive option for income investors looking for stable returns.
- The disappointing performance of Ford's electric vehicle (EV) segment, with an operating loss of $3.7 billion in the past nine months, is a significant concern that investors must address before choosing to invest in the company's stock.
- As Ford seeks to overcome its challenges and navigate the changing automotive landscape, long-term investors might want to consider the company's financials and its strategic plans for the EV segment before making a purchase decision in 2024.
