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Income Expert Takes a Ride with Ford

08/28/2019 5:00 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Based in Dearborn, Michigan, Ford (F) is one of the world’s leading automakers, explains growth and income expert Mark Skousen, editor of High-Income Alert.

A few of its leading car and truck brands include Mustang, Taurus, Expedition, Explorer, F-150, Fiesta, Fusion, Escape, Edge, Freestyle and Flex. The company also makes money from parts, services and finance. Annual revenue has topped $158 billion.

However, the price of Ford shares has slumped 10% since its second-quarter earnings release on July 24. Sales were flat and earnings fell 9% short of Wall Street’s consensus earnings estimate of $0.31 a share.

This company, too, has been negatively affected by trade tensions with China. However, it’s important to note that the whole auto industry has been under pressure lately. Tesla, Fiat Chrysler, General Motors and even Ferrari have also missed estimates.

Yet, the outlook for Ford remains positive. The company has a slew of new product launches coming in the weeks ahead. Lower interest rates and stronger employment numbers will make its cars more affordable for more consumers. Cost efficiencies will boost the bottom line as well.

Ford expects its profits for the full year to be as high as $7.5 billion, significantly higher than its $7 billion profit last year. It has also invested $11.5 billion in electric vehicles and recently announced an electric version of the F-150, the best-selling vehicle in America for more than 30 years and the bestselling truck for over 40 years.

I expect earnings to rise from $1.31 a share this year to nearly $1.75 in 2020. That should cause Ford’s dividend — already ample at 6.35% — to jump along with he stock.

Shares are dirt cheap at just six times prospective earnings for the next 12 months. Someone who appears to agree with my analysis is Executive Chairman William Clay Ford Jr.

He recently purchased 841,000 shares at $9.51, an investment of $8 million. Given the inexpensive valuation, high dividend and better earnings prospects, you should buy some too.

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