Ford: Buyer Beware (NYSE:F) | Looking for an Alpha | Daily News Byte

Ford: Buyer Beware (NYSE:F) |  Looking for an Alpha

 | Daily News Byte

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Ford: Buyer Beware (NYSE:F) |  Looking for an Alpha

 | Daily News Byte

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Ford Buyer Beware-Sell Thesis

Ford Motor Company (NYSE:F) is down significantly for the year.

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Finviz

Ford Motor Company stock is down 37% year-to-date. Furthermore, the stock is trading at a bigger discount to its 52-week high.

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Finviz

The stock is trading 53% below its 52-week high currently. However, its current technical status is a “falling knife.”

Ford stock is currently a fallen knife

Hopefully, everyone has heard the axiom that never catches a falling knife in investing.

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Finviz

Well, Ford stock currently epitomizes the falling knife scenario. The stock summarily declined at the top of the current downtrend channel and is now squarely in what I refer to as “no man’s land.” This is where there isn’t much support immediately below. The next support level is at the $11 level – more than 10% from the current price. Now, the fact of the matter is that this is the next level of major support, but there is no guarantee that it will hold. Furthermore, when a stock performs in a wrong way as Ford has done lately, I move to my next level of risk management and I need to see at least some indication of a trend change before buying. again.

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Finviz

The issue at hand is that I’m not too sure this will happen anytime soon based on the current negative catalysts waiting for the stock and markets. In the following sections, I’ll detail the headwinds I see for Ford Motor Company stock going forward.

The dividend may be cut

The dividend return was a big reason I got back into the stock in the first place. Now, according to Seeking Alpha’s quantitative metrics, Ford is in the danger zone as far as dividends go.

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Looking for an Alpha

According to Seeking Alpha:

“Ford Motor Company (NYSE:F) has shown warning signs that have previously led to dividend cuts. The company has a Dividend Safety Score of F. Over the past 11 years, 64.4% of stocks with an F rating cut their dividend. Does this mean you should sell the stock? No, not at all. It just means you should be careful about relying on this dividend for your income.”

I have no idea if they are going to cut the dividend or not, but updating the data-driven statistics about the dividend from Seeking Alpha doesn’t give me a warm and fuzzy feeling. Now let’s move on to some of the other major issues I see.

The price of used cars is going down

The Fed is scrambling to bring down inflation. One area where they have done a great job is used car prices. Increased interest rates have done a number on used car prices, directly affecting the ability of new car dealers like Ford to move vehicles. I used to audit Ford in one of my former lives as a public auditor for Ernst & Young, and one of my clients was Ford. Almost all customers trade in their used cars when buying a new one. With a significant drop in used car values ​​and increased payments due to increased rates, many prospective new car buyers have effectively been priced out of the market in my opinion. The next issue is the ICE dilemma.

ICE to EV transition drag on revenues

Another potential issue I see with the stock that I was blinded by my love for Ford the first time is the fact that they are actually in the middle of a big transition from ICE, internal combustion engine, vehicles, to EVs, electric vehicles. . It won’t be easy, and Ford will likely need to take some big hits to the bottom line as it begins to wind down ICE operations as we move forward in time. This will undoubtedly have an impact on future earnings, no two ways about it. EV companies like Tesla (TSLA) don’t have this issue.

Ford recently reported that slowing ICE SUV sales have offset gains in EV sales. According to Seeking Alpha news:

“Overall Ford vehicle sales fell against tough comparisons in 2021 as strong EV sales were offset by declining SUV and truck sales. The Michigan-based automaker reported sales of 146,364 vehicles for the month of November, led by 81,210 trucks sold. However, those numbers represent a 7.8% decrease in overall sales and a 1.2% decrease in truck sales specifically from over the past year. SUV sales have fallen sharply, down 15% from 2021 despite the aforementioned popularity for the Bronco, Expedition, and Lincoln models. Those declines offset rapid acceleration in EV sales, which grew 102.6% from November 2021 to 6,255 that month.”

So even though the company is doing well in terms of sales of EVs, it’s pretty much essentially “spinning its wheels” (pun intended) in terms of profitability. The other major issue facing the company is the fact that we are headed for a recession of some magnitude in the first half of 2023.

The recession Looms

So the Fed has just come out and said they will stay on the war path and keep rates higher until they see the “pain” across the board. It is almost 100% guaranteed that we will have some sort of recession. The problem is, even if the Fed somehow manages to engineer a soft landing, which I highly doubt, with inflation at 7% and their target rate at 2%, it will still be difficult to general public, which is the people who buy cars. Now lets finish it.

The Wrap

Buying a falling knife stock like Ford when heading into a recession with slowing sales and lower margins is a recipe for losing money. It’s as simple as that. Add in the fact that the company may need to cut the dividend and you have a disastrous situation on your hands.

Now is not the time to start a new position in Ford Motor Company stock, as I see major technical weakness currently. I would need to see the first signs of a trend change at this point to start a new position.

For existing stock holders, I cannot make a blanket sell call. Everyone has their own specific situation and risk tolerance. It would be interesting to hear from Ford current longs about your current thoughts and any option strategies you might use to reduce risk, Selling covered calls, etc. I wish the longs well! Don’t get me wrong, just put my thoughts out there to see what people have to say. Those are my thoughts on the matter, I look forward to reading yours!

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