Can Ford Keep The Recovery Going For Rest Of 2020?

Investors of the original automotive company, Ford (NYSE: F), have been enjoying a 75% rally in the stock since the middle of March. It’s the first time in nearly ten years that shares have moved so much, so quickly. The caveat at this time of course being that it comes on the back of a viscous 50% crash that shares are still recovering from.

It’s been a tough few years for Ford investors who’ve had to watch shares tick lower in what seems like a perpetual downtrend while newer kids on the block have exploded upwards. In the past decade, Ford shares are down about 60% while the likes of Tesla’s (NASDAQ: TSLA) are up around 7,000% over the same period. Ford has struggled to remain competitive as a wave of innovation and automation has swept through one of the, historically at least, least techy industries.

Investors have also started to look further ahead into the future and care less about what’s happening today or what might happen tomorrow and more about what’s going to be happening in a year or two’s time. Ford’s sales by unit easily outweigh Tesla’s right now but the market couldn’t care less. This thinking is even more pronounced with Nikola (NASDAQ: NKLA), who have yet to produce even a single one of their electric trucks but who’s market cap has already soared past Ford’s. 

But for all that, most of Wall Street likes to think the glass is half full and all that so in the context of this past summer, Ford shares are certainly performing well. The question is, does this rally have the strength to evolve from a dead cat bounce into a true uptrend?

Considering The Positive

In the bull camp, there has been much talk about the company’s ongoing pivot into the electric car space driving shares higher in the years to come. While it might be a little slower than many would like, at least the pivot is happening. The company is making all the right moves to get their new, electric version of their banner F-150 truck into production in 2021 and on the market in 2022. Factories are already being outfitted with new assembly machinery and the launch should coincide with Tesla’s launch of their hyped-up Cybertruck pickup.

From an operational perspective, the company has been trimming some fat as well as they target 1,400 voluntary layoffs by the end of the year. This comes on the back of 7,000 layoffs in 2019 and these are seen as key steps in management's $11 billion restructuring plan. Ford’s Americas President Kumar Galhotra noted recently that “we’re in a multiyear process of making Ford more fit and effective around the world. We have reprioritized certain products and services and are adjusting our staffing to better align with our new work statement.”

Considering The Negative

In terms of headwinds that could take the steam out of this recovery rally, unfortunately for the bulls there are plenty. Earlier this month UBS took a bearish view of Ford’s ability to get back above 10% margins. The coronavirus pandemic was an unexpected sucker punch and increased competition is going to continue to squeeze the company.

Investors also have to contend with quarterly revenue numbers that refuse to grow. July’s revenue was down 54% year on year, April’s was down 15%, and February’s was down 5%. In March, Standard and Poors slashed Ford’s credit rating to junk status with Moody’s also raising concerns. Both tagged the company’s poor financials prior to the pandemic, the pandemic itself as well as the tightening margins already mentioned as key components to the decision.

Getting Involved

Unfortunately for the bulls, all of these negatives remain in play as we head into the final quarter of 2020. Still, management is in the process of trying to turn the ship around and shares have a bit of room to rally yet before the hit resistance on the multi-year downtrend.

There’s also an appetizing 8.6% dividend yield which could be enticing as well. For any investors getting involved at current levels, this is very much a long term recovery kind of play where you’ll want to pinch your nose and not look at the position for a while.