Shares of Ford (NYSE:F) are a lot like sugar cookies. They aren’t expensive and hey, it’s a long time until dinner. Meanwhile, there’s little nutritional value and the blast of sugar isn’t healthy. F stock, these days, is more like a cheap cookie without the sweet taste.
But investing your money is serious. Investors lured by the historic name and shares priced like a fast-food combo meal should consider cashing out.
If you can get past the mouth-watering sweets on display, there are valid reasons why investors should resist the temptation of buying F stock at this time. They include:
A consumer shift.
Loaded with debt.
Table of Contents
Consumer Behavior Has Changed
To put it simply, Ford wants the driving public to be addicted to a sugar high.
The company needs consumers to carry years of high payments to drive an expensive vehicle that will lose value startlingly fast. Ford went all in on this strategy in 2008. That’s when it decided to be an SUV and truck company. Officials hope this grab for higher-profit vehicles will carry Ford long enough to catch competitors that are better poised for the future.
This move comes as Ford’s market share fell in that last seven years from 19% to 14%.
Meanwhile, along came the novel coronavirus. Millions of people lost their jobs. Many of those still with jobs began working from home and they love not commuting.
In addition, during the age of Covid-19, activities and gatherings are curtailed. People are getting used to not going out as much and far fewer are making long trips on the road or by plane. This could be the case even after vaccine protection is achieved.
Therefore, the trend is not appealing for Ford, which frankly needs people to be employed and confident enough to buy new vehicles. Optimistic pundits contend Ford’s new versions of the Bronco, Mustang and F150 will draw eager customers. But will that be enough?
Turnover at the Top
F stock was crushed like a host of others by the novel coronavirus sell-off earlier this year. But remember those shares weren’t exactly soaring when the Covid-19 pandemic hit.
I don’t think it is a coincidence that Ford CEO Jim Hackett is retiring in October. Judging by the stock price, his three-year tenure has not inspired Wall Street. Hackett’s stint followed Mark Fields, a who also was CEO about three years.
The succession of CEO departures (four since the Great Recession) does not inspire confidence in investors or board members. Hopes are high for the next CEO, Jim Farley, who brings a good track record into the executive suite.
Ford needs clear vision and effective-but-stable leadership to match these difficult times.
Debt Is a Drag
Seeing an automaker carrying a significant debt load is nothing new. Making vehicles is an expensive proposition, not to mention toting loans made to consumers so they can buy those vehicles. But as InvestorPlace’s Thomas Yeung pointed out recently, Ford has a big debt problem.
Ford’s situation spotlights how decisions can impact a company several years later.
Unlike General Motors (NYSE:GM), Ford did not declare bankruptcy in the Great Recession. Many respected the company’s ability to avoid that fate, but the debt Ford took on then is being felt now. GM got rid of debt and restructured.
The difference in current share prices (about $7 for Ford and $29 for GM) may not tell the whole story, but the comparison is instructive.
Bottom Line on F Stock
Ford needs the economy to hum until it can execute a strong pivot to meet future transportation needs.
Investors, though, want to put their money to work. And F stock just isn’t measuring up. Yes, it is cheap. That’s the market’s verdict on its worthiness. There are plenty of other companies that fare better with less risk.
If you bought Ford shares around the sell-off, I agree with those who say take your profits. Along those lines, if the stock dips back to the depths, maybe jump in and hope for another climb.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C. At this writing, Larry Sullivan does not own a position in any of the aforementioned securities.
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