Like many companies, Ford Motor Company (F -1.92%) had a rough time in 2022 as macroeconomic challenges like inflation and rising interest rates wrought havoc on financial markets.
But this could also be an opportunity to buy shares at a discount. Let's explore three reasons why investors might want to buy the dip on this legendary American automaker.
1. Ford is positioned to overcome economic challenges
As a whole, the auto industry is facing some big near-term headwinds. Since 2020, companies like Ford have faced supply chain problems, such as a shortage of semiconductor chips, which has made it difficult for them to produce enough cars to meet demand. According to CNBC, this challenge has sent new car sales down as much as 9% to 13.7 million -- a level unseen since the aftermath of the Great Recession.
Image source: Getty Images.
However, there is light at the end of the tunnel. Experts interviewed by The Financial Times expect supply shortcomings to ease by the end of 2023. And perhaps more importantly, Ford has made moves that could position it to reap big rewards when the industry bounces back.
Since 2018, the company has embarked on a massive global restructuring designed to streamline the business and focus on the most lucrative opportunities. The strategy has involved cutting thousands of jobs and discontinuing less profitable product lines like sedans in favor of trucks and SUVs.
While current industry weakness will delay the impacts of this transition, Ford could emerge from the crisis leaner and more profitable.
2. Electric vehicles could help future-proof revenue
According to research conducted by Bloomberg, over half of U.S. car sales will be electric by 2030. That's thanks in part to government efforts to promote clean energy through tax credits and other incentives. For traditional automakers like Ford, transitioning to EVs will be crucial for it to remain a key player in the industry.
Ford's electric strategy rests on its key brands, such as the F-Series pickup trucks. With over 640,000 units sold in 2022, these trucks have been the best-selling vehicle in America for 41 years straight.
They boast brand recognition, dealership networks, and a loyal user base who will be more inclined to stick with Ford when they are ready to switch to electric vehicles. Ford's EV sales more than doubled to 61,575 units in 2022, with its all-electric F-150 Lightning becoming the best-selling electric truck in the country, with 15,617 sold.
3. The valuation is too good to ignore
With a forward price-to-earnings (P/E) multiple of just 6.3, Ford stock trades at a sharp discount to the S&P 500 average of 20. And that valuation is dirt cheap compared to the current EV market leader Tesla, which boasts a P/E of 24.
To be fair, Ford is not a growth stock, but its value as an affordable way to bet on the automotive industry is undeniable.
