Ford engine (F) started the new decade with optimism as it emerged to compete in the era of smart vehicles and clean energy. The automaker is investing heavily in new technologies to keep pace with autonomous vehicles, ride sharing and electric cars. But does all of this effort make Ford stock a buy right now?
The unveiling of the Mustang Mach-E in November 2019 was a milestone in the company’s move into what it called “the digital future.” The Ford Mustang Mach-E, an all-electric crossover, made its US commercial debut in late 2020. Ford is beginning production of the Mach-E, a competitor to the Tesla (TSLA) Model Y, also in China.
And Ford didn’t stop there: It started shipping the all-electric F-150 Lightning pickup truck.
Ford’s investment in electrification helped propel the stock to a 140% gain in 2021. This led Ford to briefly outperform General Motors (GM) in market capitalization for the first time in five years. But where is Ford now? If you are considering buying stocks, it is crucial that you analyze the fundamental and technical picture first.
Ford issued a recall affecting 634,000 SUVs on Nov. 25. The automaker said potential fuel line problems could cause fires in its popular Escape and Bronco Sport models.
Ford has urged owners of 2020-2023 MY Bronco Sport, as well as Escapes with 1.5-liter 3-cylinder engines to visit their dealership to inspect a potential broken fuel injector. The massive recall comes just months after the automaker had to issue a recall and stop selling the Mustang Mach-E over battery issues.
Ford stock was largely unaffected by the news. The stock rose slightly after the Thanksgiving holiday.
Ford earnings news
Ford shares rose after its third-quarter earnings beat on Oct. 26. The automaker reported a 41% drop in earnings to 30 cents a share. Revenues increased 10% to $39.4 billion. Wall Street had expected Ford earnings to fall 47% to 27 cents a share, with revenues rebounding only 5% to $37.464 billion. Analysts had cut opinions after Ford warned of supply shortages and higher costs in early October.
The automaker eased its expectations for the fourth quarter due to continued supply chain disruptions and inflationary pressure. Ford now projects full-year Adjusted EBIT of approximately $11.5 billion. It’s up about 15% from 2021, but at the lower end of its previous goal of $11.5bn-$12.5bn.
Driving Ford’s third quarter performance was a net loss of $827 million. Ford attributed that loss to supply challenges and the company’s investment in the business of self-driving startup Argo AI. Next, Ford is shutting down Argo AI, because “profitable, fully autonomous vehicles on a large scale are a long way off,” Ford CEO Jim Farley said in an Oct. 26 statement.
Supply shortages left about 40,000 partially built vehicles in inventory at the end of September. Ford still expects to complete and ship those vehicles in current Q4 as needed parts arrive. The automaker also made payments to suppliers about $1 billion more than expected.
Electric vehicles will continue to play a key role in Ford’s growth strategy. Ford is targeting a global usage rate of 600,000 EVs by the end of 2023.
Ford’s October car sales were down about 10% on supply issues. US sales totaled 158,327 for the month. This is a decrease from the approximately 176,000 units sold in the same period last year. The year-over-year totals were also lower than the overall auto industry growth of 9.1%.
Ford’s range of electric vehicles continues to be a driver of sales growth. Total U.S. EV sales were 6,261 vehicles, up 120 percent year-over-year. That’s about double the growth rate of the overall EV segment, Ford said. But that’s still a sliver of the EV market and overall Ford sales.
Electric F-150 prices will go up
Ford’s popular all-electric truck is about to get more expensive. The automaker announced on Aug. 9 that prices for the F-150 Lightning model would increase to $8,500 for the 2023 model year. Ford blamed the rising cost of materials to produce the popular electric trucks for the hikes. of prices.
The truck’s $40,000 starting price was set to compete with the Tesla Model 3 sedan, which costs $48,000. The Elon Musk-led automaker won’t start producing its Cybertruck until at least 2023.
Ford officially delivered its first electric pickup at the end of May, with production still relatively low. The F-150 Lightning model received 200,000 reservations when it was first announced in April. The launch of the F-150 Lightning was seen as a pivotal moment in Ford’s breakthrough. The automaker has invested billions in its transition to EV production.
In March, Ford said it would split the company’s electric vehicle business and gas engine business in a major corporate reorganization. The Wall Street Journal reported that both operations will be maintained internally, “with separate names and their own leadership structures and profit and loss statements.”
Ford cuts jobs to finance electric vehicle spending
Ford plans to cut 8,000 jobs to fund electric vehicle spending. These cuts will mainly come from Ford’s internal combustion unit, Bloomberg reported. In addition to the alleged workforce cuts, Ford also confirmed it had secured 100% of the battery cell capacity needed to support its annual goal of 600,000 electric vehicles globally by the end of 2023.
In June, Ford announced plans to invest $3.7 billion to ramp up production of electric and gas-powered vehicles. That money will go towards the reorganization and modernization of factories in Michigan, Ohio and Missouri. Ford’s investment is also expected to create 6,200 union manufacturing jobs.
The Detroit automaker’s latest spending to expand EV production reflects Ford’s growing investment in the EV market. In mid-March, Ford extended a deal with Volkswagen (VWAGY) that will double European EV production to 1.2 million cars by 2023. The automaker also struck initial deals with SK Battery and Koc Holding to build an EV battery plant in Turkey.
In February, Ford increased its spending plan for electric vehicles by $20 billion. That investment was in addition to $30 billion Ford already earmarked for electric vehicles through 2025. Those investments were followed by the separation of the company’s EV and gas units. Growing investment in the electric vehicle segment comes from increased sales of Ford electric models. The company had to close orders for its 2022 Maverick hybrid pickup due to overwhelming demand. Orders for the 2023 Maverick will resume in the summer.
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Fundamental analysis of Ford stocks
To determine if Ford stock is a snap buy, fundamental and technical analysis is key.
The IBD Stock Checkup tool shows that Ford stock has an IBD Composite Rating of 34 out of a possible 99. It falls far short of the highest tier of leaders rated above 90, in terms of fundamental stock selection and more technical important criteria.
Ford stock has a weak EPS score of 41 out of 99. The rating compares quarterly and annual growth in earnings per share to all other stocks. In the midst of the transition, Ford has a mixed earnings track record. The company has experienced a decline in quarterly earnings greater than its share over the past decade. However, estimates point to growth.
IBD ranks automaker no. 6 among its automotive peers. But the automakers group is number 154 out of 197 industry groups tracked by the IBD. It is ideal to focus on the best stocks found in the top 40 IBD groups.
Technical analysis of Ford shares
Ford stock is working on a cup-and-handle basis with a buy point of 14.77. Shares are trading tightly just below the 200-day line as Ford shares look to re-establish an uptrend after hitting a 52-week low in July.
But the 200 day level has proved to be an area of resistance. Ford shares flirted with recapturing its 200-day line in mid-August but were quickly rejected. The last time Ford shares traded above the level was in March.
Consider Ford’s relative strength
Ford’s relative strength line, which measures how a stock’s price has moved relative to the S&P 500, has retreated significantly after rising in early 2022.
IBD’s research shows the importance of focusing on stocks that outperform the market.
Ford shares: an instant buy?
Ford shares rallied in 2021 and 2022, but fell sharply during the recent bear market. Overall production is challenged by supply chain issues. Sales of electric and hybrid vehicles are booming year-on-year, but from a still low base.
Bottom line: Ford stock is not a snap buy.
While Ford is creating a new buy point, much of that foundation has been built below a downward sloping 200-day line and deep into a 10-month consolidation. Market conditions are also unstable. Ideally, investors would like to see stocks bounce above their 200-day/40-week lines before they can look usable again.
To find the best stocks to buy and watch, check out IBD’s stock listings page. More stock ideas are available on our Leaderboard and MarketSmith platforms.
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