I know it is too simplistic to look at forward PE and that we are going to have driverless cars and everything but with dividend yield over 4% and forward PE in the sevens, Ford just seems way undervalued. Thoughts?
I initially bought in on ford at $14.39 in January and have increased my shares on every dip below that…
there’s a certain Canadian that will come in here and tell you to short F, and the other autos, because of the number of Americans financing cars on 6 & 7 year loans and being upside down limiting their near-term ability to buy new cars…
if all cars are driverless, there’ll be far fewer cars produced, killing economies of scale and forcing more serious showdowns with unions. this is the key risk for all automakers looking 10-20 years out. they could all end up being unprofitable given their existing employee comp agreements and pension/debt obligations. the prospect of owning fairly levered stocks in a capital heavy sector with predictably negative revenue growth and likely falling margins (due to more hands in the pot - Google, Apple) is not all that appealing to me. i think autos maybe have the worst outlook of all sectors and is about to be disrupted more than any sector in recent history. it’s not often that one sector (tech) swallows another sector (autos) but that looks to be an increasingly likely end-game.
a less philosophical comment on F’s valuation. you have remember that we’re in the later part of the cycle so you have to adjust carmakers’ earnings for this reality. F trading at a forward PE of 7x is very different at the end of the cycle than at the beginning. i’d rather pay a 20x PE a the early stages of the cycle than 7x in the late stage. cyclically adjusting, i’d imagine F trades somewhere around 12-15x.
Everything, to me, is just opportunity cost.
GM’s partner in China is SAICMotor; trailing P/E 7.8X, yield 5.9% (I picked it up in the Aug crash at 9.5% yield). Solid financials, future sales looking good, lots of new announcements on “green cars” and stuff, plus SOE reforms on the way.
Since better options exist, I just can’t get excited about freakin’ Ford. Didn’t know they were even still in business?
Seems like easy money now, especially since Ford is likely to be announcing a dividend increase soon.