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What happened
October is one of the best months this year for Ford (F 0.36%), while automotive stocks recorded 19.4% gains on the month, according to data provided by S&P Global Market Intelligence. Despite rising inflation and growing recession fears, investors saw an opportunity to bet on Ford stock after it slumped in September, especially around earnings.
What now?
Ahead of earnings, Ford had warned investors of lower sales volume and higher costs in the third quarter as it grappled with a parts supply shortage. Ford’s stock fell a double-digit percentage after the warning, but that fall also set the stage for Ford’s rally in October.
Ford reported a big loss for its third quarter and also cut its adjusted earnings before interest and tax (EBIT) guidance for the full year. But even though the market initially reacted negatively to Ford’s numbers, it soon realized there was no reason to panic. The thing is, Ford decided to shut down its autonomous vehicle technology company, Argo AI, to focus on in-house self-driving technologies, and recorded a $2.7 billion noncash, pretax charge on Argo AI, which fell below it in Q3.
That said, Ford is still seeing strong demand and grew its revenue by 10% year over year in Q3. The biggest takeaway, however, is that Ford expects the supply challenges that have plagued the industry and the company for several quarters now to ease in the coming months. In fact, investors in auto stocks even got a glimmer of hope from Europe last month when new car sales in the region rose for the second month in a row in September after 13 consecutive month of descent.
In another significant industry development, the European Union reached an agreement in October to ban new combustion-engine cars from 2035, according to Bloomberg, effectively paving the way for growth for the electric vehicle industry. (EV). Europe is Ford’s second most important market, and the company has bet billions of dollars on EVs to grow its EV fleet and sales dramatically over the next five years or so. Ford’s EVs — consisting of the F-150 Lightning pickup truck, E-Transit electric van, and Mustang Mach-E — have sold out, with its total EV sales expanding 120% year-over-year in October.
What now
While it wasn’t a great quarter, Ford’s revenue growth amid supply challenges and its move to Argo AI in Q3 spoke to robust demand for Ford vehicles and management’s focus in those areas. of growth. With Ford also expected to grow its adjusted EBIT by nearly 15% in 2022 despite the guidance cut, investors wasted no time in buying Ford stock, especially after its sharp decline in the last month
Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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