Ford (F) and General Motors (GM) - which, along with Stellantis (STLA), make up the once-formidable Detroit “Big 3” - have not created wealth for investors over the years, and if anything, have destroyed wealth. The underperformance of Ford and General Motors is not limited to 2023, where both stocks are in the red, despite the S&P 500 Index ($SPX) gaining double digits. Instead, it's more of a long-term phenomenon.
GM stock, for instance, still trades below its 2010 IPO price of $33. Incidentally, the “new GM” listed that year, after having gone bankrupt the previous year. Ford hasn’t performed any better; since the 1956 listing, the shares have risen at a CAGR of under 4%. Even if we add the dividends, the returns would trail what the S&P 500 Index has delivered over these years - let alone coming anywhere near the stellar returns that Tesla (TSLA) has delivered since its 2010 IPO.
Ford Stock Has Tested the Patience of Investors
Ford stock peaked at around $36 in 1999, and currently trades at less than a third of those levels. The shares have lost over 39% in the last 10 years, and 21% in the last 20 years. Ford did have some good years in between, and the shares hit $20 in late 2021 for the first time in two decades amid optimism over its electric vehicle (EV) pivot and CEO Jim Farley’s transformation plan.
However, the stock fell in 2022, and has continued its dismal run in 2023 - even as U.S. EV market leader Tesla has surged, and is among the top 10 S&P 500 gainers for the year.
So, will 2024 finally be a good year for Ford - and will investors' patience pay off? Let's take a look.
Ford Stock 2024 Forecast
Wall Street analysts are slightly bullish on Ford stock heading into 2024, and it has received a consensus rating of “Moderate Buy.” Of the 14 analysts covering F stock, 6 rate it as a “Strong Buy” while 2 more call it a “Moderate Buy.” Four analysts rate it as a “Hold,” while the remaining 2 say it's a “Strong Sell.” Ford’s mean target price of $14.42 is about 35% higher than current levels.
Morgan Stanley analyst Adam Jonas, who is bullish on Ford stock, believes that 2024 will be a critical year for the U.S. auto industry that could determine its “long term relevance.” He listed one particularly interesting data point - while the average S&P 500 company spends the equivalent of its market cap on capex and R&D in 50 years, Ford did so in 2.6 years, while General Motors needed a mere 1.9 years.
To be sure, the U.S. auto industry is going through a big churn. While automakers have invested billions into their EV production plants, demand hasn’t taken off as expected, and they have had to readjust their production plans amid the inventory buildup. Ford has also scaled back its ambitious EV plans and delayed further investments as it adjusts production levels to better match underlying demand in order to avoid any further buildup of EV inventories.
Here's Why F Stock Looks Like a Good Buy for 2024
All of that said, I believe 2024 could be rewarding for Ford investors. Here’s why.
- Ford’s Diversified Portfolio: While the demand for EVs has lagged behind the growth in supply, Ford has the advantage of a diversified portfolio, which includes both ICEs (internal combustion engines) and hybrids. As EV sales moved to the slow lane, the company has doubled down on hybrids - and that strategy might pay off. Hybrid demand has been quite good, as the product appeals to that set of buyers who are wary of battery electric cars due to reasons ranging from high initial buying price to range anxiety.
- Ford’s Earnings Power: While Ford estimates that the United Auto Workers (UAW) contract will add between $850-$900 per car assembled, the company should be able to offset that somewhat through price hikes and cost cuts. During the Q3 2023 earnings call, Farley stressed that the company is “nowhere near peak profitability” – unlike what many analysts seem to believe. The company is generating near-record profits, and analysts expect its 2024 net profits to be only about 7% lower than 2023.
- Ford’s Valuation Multiples Are Quite Attractive: Ford trades at a next 12 months (NTM) price-to-earnings (PE) multiple of 6.8x, and in absolute terms, its market cap is just over $41 billion. The valuation multiples look quite attractive, with the 5.8% forward dividend yield being the cherry on the top.
Overall - unless we get into a major recession or the macros weaken significantly in 2024 - Ford might have a much better run in 2024, and reward the patience that long-term investors have shown towards the stock.
On the date of publication, Mohit Oberoi had a position in: F , GM . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
