Top Picks 2020: Ford Motor (F)

01/17/2020 5:00 am EST


James Pearce

Director of Research, Investing Daily

I believe 2020 will be a transition year for the stock market; that is one reason why I like Ford Motor (F). Its high dividend yield (6.6%) and low valuation (priced at less than 7 times forward earnings) should appeal to value investors, asserts Jim Pearce, growth and income expert and editor of Investing Daily's Personal Finance.

In 2018, Ford ranked third in domestic vehicle sales with a 14.4% market share compared to a 1.2% share for Tesla (TSLA). Nevertheless, Tesla’s stock market capitalization of $60 billion is nearly twice Ford’s $36 billion valuation.

However, the attention Tesla has drawn to battery powered vehicles could ultimately prove to be Ford’s salvation. Ford recently began taking reservations for its Mustang Mach-E battery powered vehicle, a tactic Tesla has exploited to generate gobs of free publicity for its new auto launches.

Although sales of the Mach-E will not be large enough to substantively improve Ford’s bottom line, the media exposure could recast the public perception of the company as a legitimate rival to Tesla.

In the meantime, Ford is taking advantage of that diversionary tactic to shore up its operations here and abroad. Ford’s third-quarter results include an 8% improvement in year-to-date operating cash flow and an 80% jump in adjusted free cash flow. That should keep Ford’s dividend safe for the foreseeable future.

From a longer-term perspective, Ford’s recently formed International Markets Group (IMG) will bring nearly 100 separate foreign markets together under a single management team.

Those regional markets, which include India, Africa, Russia, and the Middle East, are growing twice as fast as Ford’s primary markets of the U.S., Europe, and China.

The Ford turnaround story will take years to unfold as the company pivots towards EV sales and expands its international presence.

Over the past two years, Ford has traded between $8 and $10 and is currently at the midpoint of that range. I don’t expect its share price to break out of that range until the company begins making deliveries of its Mach-E next fall, but until then you can buy Ford up to $10.

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