My best car stock to buy and keep forever

There’s no getting around it – 2022 hasn’t been a good year for automakers. Inventories of all major manufacturers, whether fossil fuel vehicles or electric vehicles, are down double digit percentages. The seasonally adjusted annualized rate (SAR) of new light vehicle sales in August is about 13 million units, down 14% from the year-ago period.

However, August sales themselves were up 6% from a year ago and 3% from July. So while year-to-date numbers show the industry is still booming, it could be a sign that car sales may be starting to pick up again. In both cases, Ford (F -5.21%) is a stock investors should have on their watchlists. This is my best auto stock to buy and hold forever.

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An industry stuck at a standstill

Automakers are struggling to sell cars this year. Dealer lot inventories are low due to supply chain issues caused by ongoing COVID-19 lockdowns, such as those in China, while Russia’s invasion of Ukraine has exacerbated the problem .

Shipments of critical components like computer chips ended up being delayed, making new models unavailable in showrooms. Many manufacturers have responded by shipping vehicles without chips for non-safety related checks, such as air conditioning, just to have something to sell.

China, however, has imposed another round of strict lockdowns, this time in the major manufacturing city of Chengdu, which accounts for 1.7% of the country’s economy and is home to factories for some of the world’s largest companies. , notably Apple and Toyota. Disruptions to global supply chains are not expected to be over anytime soon.

However, automakers have managed to recover to some extent. Ford had a successful August, marking the second consecutive month that its vehicles were the top-selling brand and the third consecutive month that sales increased.

Even when Ford’s F-Series trucks lost their top-selling vehicle status for a single quarter last year, they came back in the following period, ending 2021 as the nation’s best-selling vehicle. That’s an unprecedented 44 consecutive years of having the most popular truck in the country.

Ford performed better than the industry

Ford sold more than 158,000 vehicles in August, a 27% increase over last year and well ahead of the industry’s 4.8% gain. This helped it gain an additional 2.4 percentage points in market share, giving it a total of 13.4%.

Demand across its entire vehicle portfolio remains strong, whether trucks, SUVs, cars or electric vehicles, with each segment outpacing the industry.

Truck sales rose 13% in August, SUV sales rose 48%, car sales jumped 49% and electric vehicle sales quadrupled to just under 5,900 units, the F-150 Lightning having had its best month since its launch. Ford says the Lightning is the best-selling electric truck in the country and the F-150 Hybrid is the best-selling hybrid truck. The Mustang Mach-E electric muscle car saw sales more than double during the month.

This bodes well for Ford’s long-term growth, because where Stellantide seeks to be fully electric by 2028 and General Motors by 2035, Ford is hedging its bets by keeping much of its fleet based on fossil fuels. Not that it’s ignoring alternative fuel vehicles — a good chunk of Ford’s announced 3,000 layoffs come from its workers who make internal combustion engine plants in Dearborn, Michigan. He plans to use the savings to invest more in electricity, but it may be a bumpier road than expected.

A solid long-term choice

Ford is resolutely turned towards the future. It ended the second quarter with $49 billion in cash, cash equivalents and short-term investments, enough to offset the $17 billion in long-term debt it has, excluding Ford Credit. It also has a $45 billion line of credit that can be used to further fund its growth.

Ford’s stock posted a stellar performance in 2021, rising 136% for the year, only to turn south this year as pressures from supply chains and the broader market downturn weighed on its shares . Ford is down 25% year-to-date, but with just seven times its earnings, five times next year’s estimates and just 13 times the free cash flow it’s generating, shares of the automaker are cheap to buy now.

Admittedly, Ford hasn’t always been a stellar stock to buy, consistently underperforming the S&P 500. Since 2000, its stock has been down 50%, but over the past decade the automaker has seemed finding its rhythm and its return on invested capital has clearly improved. , doubling in value.

This came as Ford focused less on sedans and leaned more toward trucks and SUVs, which some accounts account for 97% of its business in the United States. This resulted in some loss of overall market share, but improved profitability (and its truck market share improved). Ford has also generated strong free cash flow, worth more than $34 billion over the past 10 years.

With the goal of being able to sell all the cars and trucks that consumers want to buy in the future, Ford is a stock that investors can hold with confidence for a long time.

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