Continued threats between the U.S. and China in imposing taxes on each other is taking a toll on shares of Ford Motor Company (NYSE: F). The stock, which now yields a dividend of over 6%, is trading around yearly lows. At a mid-single-digit P/E and valuations favorable to that of General Motors (NYSE: GM) and Tesla (NASDAQ: TSLA) especially, markets are bracing for trouble next year for Ford.
Analyst Adam Jones of Morgan Stanley cited the Moody’s rating cut as a reflection to the weakness ahead. Unless Ford articulates a business plan and executes its strategy, free cash flow will fall sharply in 2019. Despite the downbeat prediction, Ford’s cash flow more than covers its dividend by a wide margin. This will keep income investors holding F stock, despite the stock’s drop.
With macro uncertainties and company-specific unknowns at a peak, Ford stock could already reflect the worst case scenario. Neither Ford nor GM have a debt profile that is of concern. Although Ford’s revenue will fall as it shifts its product line towards SUVs, trucks, and fewer sedans, the capital expenditure, and operating expenses will fall as needed.
Your Takeaway
Ford is quietly building an EV strategy that the market is ignoring. It is slimming down the business and sticking with the most profitable models. This strategy will pay off and the stock will recover from lows.
Disclosure: Author owns shares of Ford.
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