If you have $1,000 tucked away after the holiday splurge and are on the hunt for undervalued stocks, consider Ford Motor Company (NYSE: F). This iconic automaker not only boasts a steeply discounted price-to-earnings ratio of 7, but also offers a juicy dividend yield exceeding 5%. Moreover, the company appears poised for substantial growth as it pivots its previously cash-draining electric vehicle (EV) arm into a lucrative enterprise.
Smooth Sailing Ahead
Despite the seismic shifts in the automotive industry, marked by the transition to EVs and potential breakthroughs in autonomous vehicle technology, such endeavors come with exorbitant costs. Acknowledging this reality, Ford wisely decided to abandon expenditure on research, testing, and development of self-driving vehicles when it jettisoned Argo AI, resulting in a $2.7 billion charge.
Fast forward to the present, and this decision seems increasingly prudent compared to the ongoing woes besetting its local counterpart, General Motors. The latter’s autonomous vehicle unit, Cruise, once valued at roughly $30 billion, has hemorrhaged approximately $8 billion since 2017. Any hopes of generating $50 billion in revenue by 2030 now appear increasingly fanciful.
In contrast, Ford’s strategic focus on elevating Level 2 and 3 autonomous systems promises to introduce more profitable options and features to its vehicles, effectively plugging a significant drain on its profit margins compared to its chief rival.
Turning the Tide
Further bolstering Ford’s growth prospects is the anticipated turnaround in its Model e business unit. Although the company expects this arm, encompassing all of its EV products, to hemorrhage approximately $4.5 billion in 2023 alone, the silver lining is that such staggering losses are transient. Management anticipates the division swinging into profitability by the conclusion of 2026, buoyed by enhanced scale, design improvements, and other mitigating factors.
Image source: Ford Motor Company.
Highlighting the pivotal role of scale in augmenting profitability, Ford recently reported record fourth-quarter EV sales that propelled the Ford brand to the No. 2 position in the U.S. EV market. Notably, the F-150 Lightning witnessed a remarkable 74% surge compared to the previous year, clinching the top spot in electric trucks. Moreover, the F-150 Hybrid secured the leading position among full-size hybrid trucks in 2023. These accomplishments are particularly significant, given the imperative for Ford to leverage its long-standing dominance in the conventional truck segment into the burgeoning EV truck market, which is set to remain a bedrock of profitability for automakers.
The Dividend Delight
An additional compelling reason to consider an investment of $1,000 in Ford is the company’s robust dividend profile. Not only does Ford have a storied tradition of disbursing supplemental and special dividends, as evidenced by its recent $0.65-per-share special dividend stemming from the disposal of its stake in Rivian Automotive, but the overall returns significantly surpass the stock price gains over the long term, largely fueled by its consistent and substantial dividend.
Ultimately, while Ford’s stock price has stagnated in recent years, substantial near-term upside is foreseeable as the company’s EV division transitions from cash burn to profitability, and its attention shifts away from the costly pursuit of developing autonomous vehicle technology. Furthermore, the attractive 5% dividend yield offers investors a compelling incentive as these developments catalyze the company’s bottom-line growth.
Should you invest $1,000 in Ford Motor Company right now?
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Disclaimer: The author has positions in Ford Motor Company and General Motors. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.