Is Ford Motor Stock A Better Investment Than Tesla Motors Stock

  • In my view, at this moment Ford stock is a better investment than Tesla stock.
  • Considering its compelling valuation metrics, Ford stock is significantly undervalued.
  • While I do believe that TSLA's stock still has room to grow, investment in this fast-growing company is riskier.

People interested in investing in automakers' stock might find themselves in a dilemma, should they choose a deep value stock like Ford (NYSE:F), or a high growth auto stock like Tesla (NSDQ:TSLA)? This doubt is a specific case in the much broader dilemma os which is a better stock picking strategy, value or growth?  Let us first compare the two stocks on value and growth parameters.

Also Read: Why Tesla Motors Inc Stock Is A Risky Bet Right Now

Value Parameters

Ford stock is significantly undervalued. Ford's trailing P/E is very low at 5.53, and its forward P/E is also very low at 6.70. The price to free cash flow ratio is extremely low at 4.84, and the PEG ratio is very low at 0.62. In contrast, Tesla has a negative trailing P/E, and its forward P/E is very high at about 130. Moreover, its price to sales ratio is very high at 7.20, and its price to book value is also very high at 12.37.

 2016-08-27 09_25_43-Photos 1

Growth Parameters

Tesla has recorded substantial sales growth in the last few years. The company's average annual sales growth over the past five years was extremely high at 103%, compared to Ford's average annual sales growth of 3% over the same period. Although Tesla's EPS growth was negative in the last five years, its average annual estimated EPS growth for the next five years is very high at 35%. In comparison, Ford's estimated EPS growth for the next five years is about 9%.

 2016-08-27 09_26_11-Photos 2

Value versus Growth

Concerning the dilemma, which is a better stock picking strategy, value or growth? I have gathered historical results for the two strategies. The table below shows the average annual total return of three ETFs over the last year, the last three years, five years, ten years, and fifteen years. The three ETFs represent the market (iShares Russell 1000 ETF), value stocks (iShares Russell 1000 Value ETF), and growth stocks (iShares Russell 1000 Growth ETF). Only over the last ten years period, there was a significant difference between the three ETFs. The average annual return of the growth ETF has been 9.14%, while the average return of the value strategy has been 5.91%, and that of the market was around 7.62%. In all other periods, the three ETFs have given pretty similar results.

2016-08-27 09_26_27-Photos 3

As I see it, although the ten years average return of the Russell 1000 Growth ETF has been 55% higher than that of the Russell 1000 Value ETF, we cannot conclude that growth strategy is superior to value strategy, since the results in the other periods have been pretty similar.

Ford Motor

Although Ford has recorded a tepid growth in the last few years, it could achieve significant growth in the next few years. On August 16, Ford announced its intent to have a high-volume, fully autonomous vehicle in commercial operation by 2021. According to the company, it is investing in or collaborating with four startups to enhance its autonomous vehicle development, doubling its Silicon Valley team and more than doubling its Palo Alto campus.

CEO Mark Fields explained:

 “The next decade will be defined by automation of the automobile, and we see autonomous vehicles as having as significant an impact on society as Ford’s moving assembly line did 100 years ago. We’re dedicated to putting on the road an autonomous vehicle that can improve safety and solve social and environmental challenges for millions of people – not just those who can afford luxury vehicles.”

According to Boston Consulting Group, vehicles that drive themselves on the freeway or take over in traffic jams may be on the road in large numbers by 2017 and autonomous cars might create a $42 billion market for the technology by 2025. Ford is not the only company developing an autonomous vehicle, General Motors (NYSE:GM), Apple (NSDQ:AAPL), Alphabet (NSDQ:GOOGL), and TSLA are also developing autonomous vehicles. However, Ford is the only company to commit launching an autonomous car as early as 2021. In my view, being the first to launch autonomous vehicles will give Ford a significant advantage over its competitors. Hence, we can expect higher sales and earnings growth for the company.

Stock Performance

Since the beginning of the year, Ford stock is down 12.1% while the S&P 500 Index has increased 6.1%, and the Nasdaq Composite Index has gained 4.2%. Moreover, since the beginning of 2012, Ford stock has gained only 15.1% In this period, the S&P 500 Index has increased 72.5%, and the Nasdaq Composite Index has risen 100.3%. According to TipRanks, the average target price of the top analysts is at $14.75, an upside of 19.1% from its August 26 close price. However, in my opinion, shares could go much higher.

Since the beginning of the year, Tesla stock price is down 8.3%. However, since the beginning of 2012, TSLA stock has gained an astounding 670%. According to TipRanks, the average target price of the top analysts is at $267, an upside of 21.4% from its August 26 close price, which appears reasonable, in my opinion.
F stock chart

F stock by amigobulls.com

Conclusion

Although top analysts are giving TSLA stock a higher upside potential, in my view, at this moment, Ford stock is a better investment. Ford stock is significantly undervalued. Ford's trailing P/E is very low at 5.53, the price to free cash flow ratio is extremely low at 4.84, and the PEG ratio is very low at 0.62. What's more, Ford is paying a generous dividend currently yielding 4.88%, and the company is poised to achieve a significant growth with the autonomous vehicle project. While I do believe that TSLA's stock still has room to grow, investment in this fast-growing company is riskier.

Show Full Article
19 2
Is this article helpful ?    


Author's Disclosures & Disclaimers:
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

show more

Comments on this article and F stock

Charles
neutral
Tesla vs Ford is not about the fundamentals, where Ford is superior. It's about vision and mission, where Elon Musk leads. I suspect 5-10 years out the two will have similar ROI for the investor, Ford with singles, Tesla with a triple. Only Tesla, though, has the potential to hit one out of the park.
2 reply
user profile picture
user598486
neutral
Ford is dead money to anyone who buys it's stock..Auto stocks seem to be out of favor...Ford & GM anyway...
2 reply
Do share this awesome post