1 Stock Has Utterly Failed for a Decade: 3 Reasons It's Finally a Buy
Ford's stock over the past decade will make you want to cover your head with a pillow, but here's why the automaker could make the next decade far more rewarding.
By Daniel Miller
Over the past decade, Ford Motor Company (F 1.14%) has seen some high highs and some low lows. It has won numerous awards for its lauded F-Series trucks and developed its Ford Pro commercial division into a consistent higher-margin business.
The company has also delivered highly successful new nameplates such as the Maverick, revived another successful model in the Bronco, and recently unveiled Ford Energy to focus on battery storage systems. It even recorded some of its most profitable years in history over the past decade.
What the company hasn't done is reward investors with a higher valuation or rising stock price. In fact, its roughly 7% increase over the past decade is downright abysmal. Despite that gloomy performance, the future should be brighter: Here are three forward-looking reasons Ford could still warrant a buy today.
1. A margin of safety
One bright spot for most of Ford's history has been its often lucrative dividend. It currently sits at a robust 4.25%, well above the S&P 500 average, and has a couple of unique attributes.
One that some investors aren't aware of is that the Ford family has a special class of shares that receive the common dividend as well as special voting rights. The family generates much wealth from these dividend payouts, which align the interests of shareholders and ownership. Both would prefer the dividend to increase and only be cut in dire circumstances.
Another intriguing attribute is that in recent years, cash flow has been mostly strong, and when cash is aplenty, the company has at numerous times awarded a special dividend that can boost value returned to shareholders. To understand how valuable the dividend is to investors, especially when Ford's stock price is stuck in neutral, compare its share appreciation alone versus total returns over the long term.
F data by YCharts.
Including its dividend, Ford offered some margin of safety compared to its price appreciation alone. While it still lags the broader market returns, investors can still bank on the dividend to provide strong value.
2. A Model T moment
Management has been busy hyping its upcoming Universal EV Platform as well as its new "assembly tree" production process that it will begin using next year. The new platform will be flexible enough to support multiple vehicle styles and will use techniques to drastically reduce the number of parts in production and costs.
The universal platform will debut on the company's next electric vehicle, a $30,000 midsize truck, aimed at an early 2027 release. Management has worked diligently to bring down other EV costs (including expensive batteries), and the universal platform and new production process mean that the vehicle is expected to be profitable early in its life cycle, even at such a low price point.
This is notable for two reasons. First, it enables Ford to take a giant step forward in reversing billions in EV losses annually, and prepares it for a future that will see increasing EV demand. Second, its innovation and cost efficiencies are preparing it to compete head-on with the advanced and affordable Chinese competition it will face around the world -- and perhaps eventually on its home turf.
The jury is still out on whether or not this is truly a Model T moment, but these developments will be crucial for the automaker to thrive as the universal platform underpins a long list of vehicles.
3. Enter Ford Energy
Unless you've been hiding in a cave -- and some end-of-days scenarios might make you want to -- you know that artificial intelligence (AI) has swept the globe in performance improvements matched only by its growing hype. Powering this evolution in AI are huge data centers that need immense computing power and energy
They also need reliable battery storage systems to help mitigate costs during peak hours and provide backup power to prevent downtime. And that's where Ford Energy comes in, with its new battery energy storage system (BESS), which the automaker has discreetly developed over the past few years.
Management aims to deploy roughly 20 gigawatt-hours annually, with the first customer deliveries beginning late 2027. The announcement quickly sent Ford shares higher last month, and Wall Street was quick to support the strategic initiative. Analysts believe Ford Energy could generate $3 billion in incremental revenue and $500 million in operating profit by the end of this decade.
Turning the corner
No, Ford has not been a great long-term investment over the past decade, and it has certainly disappointed investors despite its numerous accomplishments and highly profitable years.
That said, Ford has a real energy business in the works, one that makes sense and fits its manufacturing experience, and which can generate incremental bottom-line profits. It has also innovated its production process and developed a much more cost-efficient platform for the future of its EVs.
While investors wait for the stock price to gain traction and earn a higher valuation, the company's dividend offers a margin of safety that will continue to provide shareholder returns. For those reasons, the next decade should be much better for Ford investors.