Ahead of quarterly earnings set for July 25 after market close, shares of Ford Motor Company (NYSE: F) are already acting like management will disappoint investors. Blame the trade war escalation. Blame the market looking at Ford stock unfavorably.
The truth is, after a 14.5 percent YTD decline, the stock’s 5.7x P/E and dividend yield of 5.68 percent will attract value investors.
J.P. Morgan (NYSE: JPM) took a risk on both General Motors (NYSE: GM) and Ford when analyst Ryan Brinkman ranked both stocks an outperform. He also rated Tesla (NASDAQ: TSLA) an underweight and set a $180 price target, which implies a 40% discount.
Brinkman has a strong record, with a 59% success rate and an average return of 21.8% over two years. Despite his view that Ford will have a softer quarter, his positive view on the company is supported by headwinds dissipating.
Ford’s recall for 550,000 vehicles, due to a shifter cable bushings issue, announced on July 18 is a headwind that will raise costs, at least temporarily. Overall, investors need not worry about Ford’s quality. Its ranking improved steadily over the years.
For 2018, J.D. Power ranked the company fifth in overall initial quality.
Takeaway
Ford’s EPS growth of 57% this year could follow with a drop of 2% in 2019. But at a single-digit P/E, investors get a cheap stock, steady dividends, and upside if the trade war dissipates.
Disclosure: The author owns shares of Ford
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