In the latest quarter, Ford (F 1.69%) disappointed Wall Street with revenue and earnings that missed expectations. But the shares recently have benefited from improving market sentiment.
Even though this automotive stock has climbed 17% in the last month (as of Dec. 19), it's only up 3% this year. That's a disappointing showing when compared to the impressive 24% gain of the S&P 500.
As we near the end of the year, investors might be looking for ways to clean up their portfolios by getting rid of some companies. Should you sell Ford shares before the end of 2023?
Here's why I believe this is the right move to make.
Resolving labor issues -- for now
Ford was dealing with labor disputes for about six weeks earlier this year when its unionized workforce halted production at its factories. The uncertainty around this disruptive event created lots of worry for investors. But to everyone's relief, a deal was eventually struck.
However, the new worker contract will cost Ford an estimated additional $8.8 billion over the next five years. And just this year, the stoppage cost the business $1.3 billion in lost vehicle production and forced management to initially pull 2023 financial guidance. When they reintroduced their outlook, it showed a lower forecast for adjusted operating income and adjusted free cash flow.
While the business might have put this disturbance past it, it may occur once again when this new contract expires at the end of 2028. At that point, there's a chance that Ford will experience temporary factory shutdowns before agreeing to pay even higher wages to its workforce. That's the risk that shareholders always have to think about with Ford.
Ford's unattractive qualities
Besides occasional labor disputes that can substantially alter the company's financial situation, investors can't ignore some other reasons that make this business less compelling to add to a portfolio. For starters, I'm not a fan of Ford's cyclicality.
This company is fully exposed to the economic cycle, and factors like interest rates, gas prices, and unemployment play a major role in its success. In a higher-interest-rate environment, like the one the U.S. has been in, vehicles are less affordable for consumers.
It's challenging owning a company that sells products that customers can delay purchasing when economic times get tough. Consumers could very well pour money into maintaining their existing vehicles, as opposed to buying a new one, in a recessionary scenario. And this would pressure demand for Ford.
Cyclical businesses are also usually capital-intensive, and that's the case with Ford. Spending on research and development of new cars, building out manufacturing capacities, and paying a unionized workforce are all expensive activities. And let's not forget the company's heavy advertising budget, which is needed due to the intense competition in the industry.
Even Warren Buffett has previously said that a company requiring lots of capital investment is "a poor business to be in generally." This is more so the case in an inflationary period.
I fully understand why some investors would be inclined to hold onto their shares, though. Ford's current dividend yield of 5% is attractive for those who prioritize income. And the price-to-earnings ratio of 7.9 indicates a cheap valuation.
But in my opinion, the reasons to stay away from this stock are far more compelling than any bullish case. So it might be a smart idea to sell before the end of 2023.
Neil Patel and his clients have 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.
FAQs
Ford Motor has a consensus rating of Moderate Buy which is based on 7 buy ratings, 5 hold ratings and 1 sell ratings. The average price target for Ford Motor is $15.25. This is based on 13 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
Does Motley Fool recommend when to sell? ›
Here at The Motley Fool we stand behind a long-term buy-and-hold strategy across the board for any recommended stock. Additionally, we won't always recommend a sell just because the stock price drops - we prefer to weather market fluctuations and hold stocks in companies that we are confident in for the long term.
How high is Ford stock expected to go? ›
Stock Price Forecast
The 14 analysts with 12-month price forecasts for Ford Motor Company stock have an average target of 14.31, with a low estimate of 10 and a high estimate of 20. The average target predicts an increase of 17.39% from the current stock price of 12.19.
What stocks does the Motley Fool recommend? ›
The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Nvidia, and Walmart. The Motley Fool has a disclosure policy.
Should I sell my stock or wait? ›
If your stock gains more than 20% from the ideal buy point within three weeks of a proper breakout, hold it for at least eight weeks. (The week of the breakout counts as week 1.) If a stock has the power to jump more than 20% so quickly out of a proper chart pattern, it could have what it takes to become a huge winner.
Should I sell or hold my shares? ›
Knowing whether to hold onto a stock or sell it can be a challenging decision. There is no universal, one-size-fits-all strategy for selling a stock. Instead, it's up to the individual investor's investment strategy based on many factors, including their risk tolerance, time horizon, and financial goals.
What is the Ford outlook for 2024? ›
Meanwhile, Ford now expects free cash flow of $6.5 billion-$7.5 billion in 2024, up from its initial outlook of $6 billion-$7 billion. The auto giant also said Wednesday it anticipates 2024 capital expenditures of $8 billion-$9 billion, a narrower view compared to its previous forecast of $8 billion-$9.5 billion.
Is Ford over or undervalued? ›
Over the past 52 weeks, F's P/CF has been as high as 11.02 and as low as 3.10, with a median of 4.61. These figures are just a handful of the metrics value investors tend to look at, but they help show that Ford Motor is likely being undervalued right now.
What is the Zacks Ford forecast? ›
Based on short-term price targets offered by 20 analysts, the average price target for Ford Motor Company comes to $13.97. The forecasts range from a low of $10.00 to a high of $21.00. The average price target represents an increase of 18.69% from the last closing price of $11.77.
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Is Motley Fool Stock Advisor worth it? Yes, for stock investors Motley Fool Stock Advisor provides good value. The $99 annual cost is reasonable for access to their analysis and successful past picks. But index investors may find less benefit.
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To be fair, it wouldn't be prudent to expect Ford to reach $100 anytime soon, and even Toyota Motors (TM) - which is the most valuable legacy automaker - has a market cap below $300 billion. Another analogy, however, could be the comparison with Tesla (TSLA), which currently has a market cap of around $700 billion.
Is Ford a good investment for the future? ›
Although value investors would argue that it's the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Ford Motor's earnings over the next few years are expected to increase by 68%, indicating a highly optimistic future ahead.
Is Ford money safe to invest in? ›
As a fully regulated bank, your savings are also protected by the Financial Services Compensation Scheme (FSCS), so we're not just a name you know – but one you can trust.
Is it better to hold or buy and sell? ›
Potential to recoup losses faster
For most investors, a buy-and-hold strategy can result in quicker loss recovery, even after a bear market, when a major index like the S&P 500 falls by more than 20% from its recent high.
