Buy Ford Stock Before It Runs Higher
InvestorPlace - Stock Market News, Stock Advice & Trading TipsInvestors would be smart to buy F stock now while they are below $20. Ford shares are not likely to...
Ford Motor Co. (NYSE:F) stock has pulled back nearly 13% this year, presenting a great buying opportunity for savvy long-term investors.
F stock had a spectacular run in 2021, rising 136% to finish the year at $20.77 a share. In January, the share price kept on climbing, hitting a 52-week high of $25.87.
However, broader market weakness, production disruptions caused by the trucker blockades at the U.S.-Canada border, and an ongoing shortage of semiconductors used in Ford vehicles, conspired to pull the stock lower in recent weeks. Since peaking in mid-January, shares of Ford have declined as much as 33%, though they have rebounded recently following several positive announcements from the company.
Investors with a long-term time horizon would be smart to take advantage of the recent volatility and grab shares of F stock now while they remain below $20 a share. The stock is not likely to trade at a discount for much longer.
Reorganizing the Business
F stock rose 8% on March 2 after the company announced that it is separating its electric vehicle (EV) and internal-combustion engine businesses into separate operating units within the company. In a statement, Ford said the move will help to streamline its fast growing electric vehicle business and maximize profits.
It's a similar strategy to how Ford is operating its Ford Pro commercial vehicle business under chief executive officer (CEO) Jim Farley's "Ford+" turnaround strategy.
Separating the operations but keeping them in-house goes halfway to appeasing Wall Street analysts who have been pressuring legacy automakers such as Ford to spin off their electric vehicle units to capture value that investors are currently giving to small, unproven electric vehicle start-ups.
After the split, Ford's electric vehicle business will be called "Ford Model e." The automaker's traditional operations will be known as "Ford Blue." Ford said they will "operate as distinct businesses but share relevant technology and best practices to leverage scale and drive operating improvements."
The Detroit-based company said it will breakout financial results for the two separated units as well as Ford+ starting in 2023, giving investors greater transparency into the entire operation. Judging by the way that F stock jumped 8% higher on news of the business separation, it's fair to say that investors approve of the company's planned reorganization.
At the same time that Ford announced the reorg, the company also adjusted its electric vehicle production targets, stating that it now plans to produce more than two million electric vehicles annually and generate a 10% adjusted operating profit margin by 2026.
Those revised targets are much more aggressive than previous ones. The company had a 7.3% adjusted operating profit last year and sold about 64,000 electric vehicles, primarily its Mustang Mach E crossover. To improve its margin to 10%, Farley said the company plans to cut $3 billion from its structural costs, mostly from its internal combustion engine unit.
The strategy is similar to one previously announced by Ford's Detroit rival, General Motors (NYSE:GM), which said earlier this year that it plans to produce two million electric vehicles annually by 2025, and comes as Farley has publicly stated that Ford wants to unseat Tesla (NASDAQ:TSLA) as the world's leading electric vehicle manufacturer.
If any executive can accomplish such lofty goals, it is likely to be Farley, whose turnaround plan for Ford is starting to pay dividends. Under the Ford+ turnaround plan, the company has gone all in on electric vehicles with the goal of having 40% of its worldwide sales be EVs by 2030. To get there, Ford is investing $30 billion in electric vehicle design, technology and production.
Ford's most recent earnings for the fourth quarter of 2021 missed Wall Street expectations. The company reported earnings per share of 26 cents on revenue of $35.3 billion, while analysts had forecast EPS of 45 cents and revenue of $35.5 billion. However, the miss was largely due to temporary supply chain issues and an ongoing shortage of semiconductor chips, which has impacted most automakers and is expected to ease in coming months.
Buy the Turnaround In F Stock
Ford today is not the same company it was 30 years ago or even five years ago. After struggling for years with declining sales of its legacy sedans, the company has managed to pivot to not only focus on its best-selling line of pick-up trucks and SUVs, but it is also putting all of its resources into becoming a leader in the electric vehicle sector.
The share price climbed as high as it did last year because investors are buying into Farley's renewed vision for the company. And while Ford has continued to experience some bumps along the road, the challenges are not unique to it and are likely to resolve themselves in the near term.
With its latest reorganization and production targets set, now is a great time to hitch a ride with Ford. F stock is a buy.
On the date of publication, Joel Baglole held a long position in GM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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