- Ford and GM stocks were routed during the last two quarters of 2015, but are showing signs of recovery.
- The U.S. auto market itself has been close to peak sales of 18 million cars per month.
- Based on current sales and Ford's success in Europe, the stock could make a stable addition to your portfolio.
Both Ford Motor (NYSE:F) and General Motors (NYSE:GM) stocks were hammered during the latter half of last year as the market expected sales to drop off the cliff. However, despite being very close to peak sales of 18 million during that period, the U.S. auto market stayed resilient right through the first two quarters of 2016 - and both Ford and GM showed admirable stability in that time.
Though their stocks are yet to fully recover from the trouncing they received from the market, they have showed signs of leveling off. The industry itself has shown remarkable resilience despite being a seasonal one, not once breaking the lower support level of 16 million units per month, as you can see from the charts above.
For Ford, unfortunately, that has not translated into a proper pullback from their February 2016 lows. But the market itself has remained healthy, and Ford has really stepped up to the plate, with strong domestic sales for the first half of the year in comparison to their close rival General Motors.
The real threat to Ford’s sales performance is that it is almost completely dependent on U.S. sales to remain in the black. While their steady performance in that market this year has provided the breathing room for other divisions, one more unit is ramping up to reduce Ford's dependency on the U.S. market; and that’s Ford Europe.
In the process, however, they’ve had to write off billions of dollars as the company embarked on an ambitious plan to turnaround their loss-making European unit.
Despite that, Ford has made a strong statement with its profitability in Europe. Compared to the number of vehicles sold in 2014, they sold about 10% more in 2015, which was one of the factors that led to their profitability in Q1 2016. In addition, several efficient initiatives and the off-loading of redundant personnel, equipment and facilities drove that efficiency to the point of making the division profitable after a long hiatus in the red.
As you can see in the chart below (read chart from right to left), they’ve managed to bring back their market share from the 7% - 7.2% range to around 7.6% - another feather in the cap of Ford Europe.
As of 2015, North America was wholly responsible for Ford being positive on profitability. Income before taxes was at $9.3 billion from the segment, while overall income before taxes was only $8.2 billion. Those losses came largely from the fact that Europe’s fortunes only turned around towards the end of the fiscal. In Q1 2016, however, Ford Europe proudly posted a modest but hugely significant income before taxes of $434 million.
The Investment Angle
While Ford’s performance has shown ample signs of recovery and even growth, the same cannot be said of their stock. This is not a stock that’s going to have a great growth even if Ford suddenly launches the cheapest 300-mile range electric vehicle in the world, for example; but it is a steady stock with decent and growing dividends that they reinstated after the great recession.
The U.S. market is stable for Ford now, and their Europe division is starting to get back its mojo, so things look fairly positive for the company for the rest of the year and possibly into 2017. The auto industry itself is a cyclic one, and Ford is subject to those same vagaries. Your best bet would be to buy on the lows, and that’s whenever it gets closest to its most recent low of $11.17 set on February 11, 2016.