It was one of the accomplishments of the industrial revolution in the United States that began in the 1870s and persisted after World War II. Ford Motor is now one of the largest automakers in the U.S. and one of the five largest automakers in the world. Vehicles based on combustion engine remains its main product but it has made significant investments in electric vehicles and related technologies. This article identifies and discusses the pros and cons or advantages and disadvantages of Ford Motor stock.
The Road Ahead: Exploring the Upside and Downside of Investing in Ford Motor
Pros: Advantages of Ford Motor Stock
Ford Motor is popular among investors who want to include investments in the automotive industry in their portfolio. Those who have bought and held its stock have banked on its established brand and demonstrated management capabilities.
The current drive toward sustainable modes of transportation and a more sustainable business model has also opened prospects for further and revitalized growth in the future. Some of its bets are closer to making it a tech company.
It is also important to underscore the fact that this company has an established presence in different regional markets around the world. These include European and Asian markets. The following are the advantages of Ford Motor stock:
• Large-Cap Stock Advantages: Ford Motor is a large-cap stock. Investing in large-cap stocks has several advantages over mid-cap stocks and small-cap stocks. These include established stability, demonstrated leadership capabilities, availability of market information, and lower liquidity risk.
• Relatively Affordable Stock: Another advantage of Ford Motor stock is that it is more affordable than other automakers and large-cap stocks. Its stock price has not breached the $100 mark and has been trading below $50 per share. The stocks of Toyota and Volkswagen have traded above $100 per share.
• Considered as a Value Strong: The company has also been considered a strong value stock which makes it ideal for value investing. Value stocks have several advantages including the availability of valuation multiples, potential for steady long-term growth, demonstrated quality, and no room for speculation.
• Notable Growth Potentials: Remember that the stock of this company is considered affordable. It indeed remains a value stock but it has the potential to become a growth stock if the company pursues further research and development to introduce trendier and next-generation engines and vehicles.
• Relatively Stable Financials: The financial statements of Ford Motor have been stable for the past decade. Its income statements, balance sheets, and cash flow statements have shown consistent performance. The company has a strong cash flow. Its most recent financials have demonstrated notable improvements.
Cons: Disadvantages of Ford Motor Stock
Ford Motor faces tough competition from other automakers. General Motors remains its biggest competitor in the U.S. market but it also competes against incumbents in the automobile industry such as Toyota, Honda, Mercedes-Benz, and Hyundai, among others.
It is also important to note that Tesla remains the dominant player in the electric vehicle market. The emergence of automakers in China and production facilities in countries such as India also fuels the level of competition further.
Nevertheless, investing in this alone company has risks and drawbacks. An investor should invest in several automotive companies to maximize the potential of the entire automotive industry. The following are the specific disadvantages of Ford Motor stock:
• Cyclical Nature of Performance: Automakers such as Ford Motor are cyclical stocks. Vehicles are categorized under consumer discretionary. The performance of these companies is tied to the economic cycle. This means that their performance would be unfavorable during periods of economic downturns.
• Value Stock Disadvantages: Investing in value stocks have disadvantages. These include a requirement for longer periods of holding or long investment horizons before reaping gains and susceptibility to value traps. Value stocks have slower growth than growth stocks. This is another disadvantage of Ford Motor stock.
• Traditional Automaking Business: The company is still known for its traditional automobile manufacturing business. The specific market for vehicles based on internal combustion engines is considered mature with limited growth potential. Take note that electric vehicles are threatening this market.
• Dependence on North America: Ford Motor has a global presence but its sales and revenues remain dependent on the North American market. It struggles to compete in emerging markets due to the presence of Japanese automakers and Chinese automakers. This limits the growth potential of the company.
• Substantial Debt and Liabilities: The company has strong financials but it still has significant amounts of debt. Its liabilities are also high because automaking is a capital-intensive business. Investors and owners of Ford Motor stock must keep regular tabs on how the company handles and manages its finances.
