There’s no getting around it: 2022 was not a good year for automakers. The inventories of all major manufacturers, whether fossil fuels or electric vehicles, have fallen by double digits. The Seasonally Adjusted Annualized Rate (SAAR) for new light vehicle sales in August stands at approximately 13 million units, down 14% from the same period last year.
However, sales in August itself were 6% higher than last year and 3% higher than in July. So while the year-to-date figures show the industry is still in a steep slump, it could be a sign that auto sales are picking up again. Anyway, Ford (F -4.19%) is a stock that investors should have on their watchlists. It’s my best car stock to buy and hold forever.
An industry stuck in neutral
Automakers are having a hard time selling cars this year. Inventories on dealer lots are weak due to the supply chain caused by ongoing COVID-19 lockdowns, such as the one in China, while the Russian invasion of Ukraine has exacerbated the problem.
Shipments of critical components such as computer chips were delayed, making new models unavailable on showroom floors. Many manufacturers responded by shipping chipless vehicles for non-safety-related controls, such as air conditioning, so that they had something to sell.
However, China has imposed another round of strict lockdowns, this time in the important 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 major companies, including Apple and Toyota. Disruptions in global supply chains are unlikely to be over any time soon.
However, automakers have been able to hit back to some extent. Ford had a successful August, marking the second consecutive month that its vehicles were the best-selling brand and the third month in a row that sales rose.
Even when Ford’s F-series trucks lost their top-selling status for a single quarter last year, they rebounded in the following period, finishing as the best-selling vehicle in the country in 2021. That’s an unparalleled 44 straight years of owning the country’s most popular truck.
Ford outperforms the industry
Ford sold more than 158,000 vehicles in August, up 27% from last year and well above the industry’s 4.8% profit. This allowed it to gain an additional 2.4 percentage points of market share, bringing it to a total of 13.4%.
Demand across the entire portfolio of vehicles remains strong, be it trucks, SUVs, cars or electric vehicles, with each segment outpacing the industry.
Truck sales grew 13% in August, SUV sales were up 48%, car sales were up 49% and EV sales quadrupled to just 5,900 units, with the F-150 Lightning in its best month since 2017. launch experienced. Ford says the Lightning is the country’s best-selling electric truck and the F-150 hybrid is the best-selling hybrid truck. The Mustang Mach-E electric muscle car saw sales more than double this month.
That bodes well for Ford’s long-term growth, because where? Stellantis wants to be fully electric by 2028 and General engines by 2035, Ford will hedge its bets by keeping much of its fleet on fossil fuels. Not that it’s ignoring alternative fuel vehicles — much of the 3,000 layoffs Ford has announced come from its employees who make combustion engine plants in Dearborn, Michigan. It plans to use the savings to invest more in electricity, but that could be a bumpier road than planned.
A solid choice for the long term
Ford is firmly focused on the future. It ended the second quarter with $49 billion in 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 shares performed very well in 2021, up 136% for the year, before turning south this year as supply chain pressures and the broader market downturn weighed on shares. Year-to-date, Ford is down 25%, but at just seven times lagging profits, five times next year’s estimates and just 13 times the free cash flow it produces, the automaker’s stock is now cheap to buy. .
It’s true that Ford hasn’t always been a great stock to buy, and it has regularly underperformed the S&P 500. Shares have fallen by 50% since 2000, but over the past decade, the automaker seemed to find its niche and significantly improved return on invested capital, doubling in value.
That was because Ford focused less on sedans and leaned more on trucks and SUVs, which some say represent 97% of its U.S. business. It resulted in some loss of overall market share, but profitability improved (and truck market share improved). Ford also generated significant free cash flow, more than $34 billion over the past 10 years.
With its sights set on being able to sell all the cars and trucks consumers want to buy in the future, Ford is a stock investors can confidently hold onto for a long time to come.
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