Here’s Why I’m Bullish on Ford Stock
With oil prices crashing to seven-year lows, demand for automobiles is revving up. Topping it off, the attractive Black Friday deals from Ford Motor Company (NYSE:F) have helped drive higher-than-expected November sales for this second-largest auto company in America. However, Ford stock has been heading lower over its pending deal with the workers’ union. Here are three reasons why investors need to have faith in Ford stock.
1. Dawn of the SUVs!
Originally famous for its sedans and passenger vehicles, Ford is drifting away from compact cars to more spacious sports utilities. The company’s SUV segment has received robust demand and the company is expecting the SUV market to grow from a little over 30% of the total auto industry to over 40% in the next four years. (Source: “Something baby boomers and millennials agree on: SUVs,” MarketWatch, December 5, 2015.)
Small SUVs have witnessed a rise in demand and so have pickup trucks, as passenger vehicles lose attraction. The new Ford “Edge” SUV not only was a huge winner in the U.S., but also in China. The Ford “Escape” also matched industry sales figures. The company’s pickups are only slightly lagging behind those of General Motors Company (NYSE:GM), but due its Black Friday month-long promo, the company’s truck sales posted the best sales growth.
Of the Detroit Three, Ford has witnessed most months of this year to be its best since 2006 and might be back on track to reclaim its prerecession boom.
2. The China Factor
Despite the rise of electric vehicles in China, Ford continues to pull sales in the largest automobile market in the world. Ford’s November sales data out of China has been stellar and puts the company on target to achieving one million units in sales. (Source: “Ford Sales in China Up 9 Percent in November, Nearing 1 Million Mark for 2015,” Business Wire, November 15, 2015.)
The company, along with its local Chinese joint ventures, has seen robust demand for its sedans in addition to SUVs and heavy vehicles. Ford was able to pull in nine-percent year-over-year sales growth in November and about 0.6% growth year-to-date for 2015, compared to the same period in 2014. Now, the company is working on a new lineup of smart cars, particularly for the Chinese market.
Amid stiff competition, Ford’s success in this region bears a positive signal on its future growth potential.
3. Yummy Dividends!
Ford, General Motors, and Fiat Chrysler Automobiles N.V. (NYSE:FCAU), jointly dubbed the “Detroit Three,” make up the biggest and oldest automakers in the U.S. However, when it comes to investing in the local auto scene, Mr. Market seems to have developed an appetite for the riskier electric vehicle (EV) industry, whose future remains uncertain at best.
The unprofitable Tesla Motors, Inc. (NASDAQ:TSLA) may have become eye-candy stock on Wall Street, but Ford’s stock remains a stable investment for most retirement portfolios. Why? Because of all the above companies, Ford offers the best dividend yield at 4.23%, with the other three offering either a lower dividend or none at all.
The Bottom Line on Ford Stock
Ford is a dominant contender on the auto industry sales leaderboard, second only to General Motors. Despite the company’s handsome performance figures this year, F stock’s year-to-date performance has been lackluster, with the position down nine percent this year. However, the company has continued to deliver the highest return on equity through dividends and buybacks. Of the Big Three, Ford boasts the highest return on equity at 17%, the highest short-term liquidity, and the strongest operating cash flows.
In a nutshell, forget trading on the Tesla fad and take a second look at Ford stock.