I’ll Buy a Rally in Ford Stock

It’s been a bumpy road for Ford (NYSE: F) stock of late. 

It gained some momentum in July, topping out at $14.85 per share. But a disappointing earnings report resulted in an ugly spinout that saw Ford stock test a fresh 52-week low of $9.49 in early August. 

Now it’s trading around $10.50 with its third-quarter earnings report due later this month. It’s not clear that the company will regain its momentum in light of those results, but it also seems like the downside is pretty much baked in at this point. 

In other words, it would take a real blunder of a third quarter to tank the stock any further. However, an upside surprise could fetch a pretty remarkable short-term gain. 

The most likely result, of course, is something in between a rollicking success and an abysmal failure — results that don’t move the needle either way. But that’s OK, too, because the most attractive thing about Ford stock right now is its dividend, which yields almost 6%. 

Can Ford Stock Return to Glory?

Indeed, buying low on Ford today means locking in a tidy dividend yield. And while the stock may or may not speed back from its latest drop, the company itself isn’t going anywhere. 

After all, this is Ford we’re talking about — an American icon. I just bought one of the company’s trucks myself. So the 50,000-foot view is that this is an investing stalwart with high upside, relatively muted downside, and a generous yield. 

That seems like an appealing medium- to long-term investment to me. But if that’s not enough for you, we can also drill down a bit. 

Getting back to Ford’s second-quarter earnings report, for example…

The big issue there was a 4% drop in net income, which totaled $1.8 billion. Ford attributed the decline to three things:

• Increased warranty expenses
• The launch of new vehicles
• Money-losing electric vehicles

The warranty costs were a big blow, as they were unplanned and totaled $1.5 billionI’m not saying it can’t happen again, but lightning usually doesn’t strike twice like that. And so Ford’s full-year forecast for adjusted earnings remains unchanged at $10 billion–$12 billion.$2 billion. Obviously, that’s not great. But it’s also something of an anomaly. The warranty costs represent a $700 million increase from 2023’s second quarter and an $800 million increase from the first quarter of this year. 

I’m not saying it can’t happen again, but lightning usually doesn’t strike twice like that. And so Ford’s full-year forecast for adjusted earnings remains unchanged at $10 billion–$12 billion.

Similarly, the cost of new vehicle launches should subside, as well. That just leaves EVs, which are indeed an albatross, as Ford’s EV division posted a $1.1 billion loss for the quarter. 

That hardly makes the company an outlier, though. EV sales are struggling across the board. Car sales — both electric and traditional — are also down in Europe and China, affecting automakers of all stripes. These are just the times we live in. 

Even still, Ford ranked third in U.S. EV sales through the first half of the year, trailing only Tesla and Hyundai. And it’s trying to make up more ground with new pro-EV initiatives. 

For example, the company is now offering free home charging stations and installation — an industry first. That could help drum up some more EV business. But really, the effectiveness of the marketing initiative is besides the point. That’s because its traditional commercial vehicles like the F-150 are the company’s true bread and butter.

And those models have been doing quite well. That was evident in the top line of Ford’s second-quarter earnings, which showed a 6% increase in revenue, which totaled $47.8 billion, up 6% from a year ago.

The company has another sneaky growth engine, as well. And that’s its Ford Pro unit, which includes a plethora of products and services to help businesses increase productivity and performance — things like software analytics, service programs, charging infrastructure, and financing.

Ford Pro has strong margins and saw its profit rise 7% in the second quarter to $2.6 billion. 

“No other company has Ford Pro,” Ford CEO Jim Farley said of the second-quarter results. “We intend to fully press that advantage.”

Indeed, Ford Pro’s paid subscriptions have seen a compound annual growth rate (CAGR) of 35%–40% or more. And going forward, Ford is aiming for $1 billion in software revenue by 2025. It also expects software and physical services to contribute 20% to Ford Pro’s EBIT by 2026. 

So yes, there have been some setbacks from Ford. But there’s good reason to believe Ford stock is a lot closer to its bottom than its top at this point. And in the meantime, it’s got that generous 6% yield to tide investors over as they wait on the rebound.

Fight on,

Jason Simpkins

Simpkins is the founder and editor of Secret Stock Files, an investment service that focuses on companies with assets — tangible resources and products that can hold and appreciate in value. He covers mining companies, energy companies, defense contractors, dividend payers, commodities, staples, legacies and more…

In 2023 he joined The Wealth Advisory team as a defense market analyst where he reviews and recommends new military and government opportunities that come across his radar, especially those that spin-off healthy, growing income streams. For more on Jason, check out his editor’s page.

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