Though the stock market is testing all-time highs, there are still a handful of companies that have been left for dead by investors. Some deserve that disdain; others may not. The trick is to dig deeper and figure out which of these unappreciated stocks could be more valuable than it's getting credit for, and worth the risk to buy. Dividend stocks Ford Motor Company (F +0.25%) and Polaris Industries (PII +0.05%) are down, but don't count them out just yet.
Data by YCharts
Auto woes
April showers bring May flowers, or so they say, but it's clear things weren't as rosy at Ford as many believed. That became abruptly clear last month when the Board of Directors ousted CEO Mark Fields and brought up Jim Hackett.
Ford's corporate culture had reportedly regressed quietly back into a toxic state that had been alleviated years prior under the watch of former CEO Alan Mulally -- and the board believes Jim Hackett to be the second coming of Mulally. Those are quite the shoes to fill, but Hackett does have a track record of success in very different industries; he's credited with turning Steelcase's business around as its CEO, and with getting the University of Michigan's iconic football program back on track as the school's interim athletic director, before making headway for his current employer as executive chairman of Ford Smart Mobility LLC.
Image source: Ford Motor Company.
There's still a lot to like about Ford shares, especially given that they are trading at a price-to-earnings ratio of around 12. The company's bread-and-butter vehicle, the highly profitable F-Series pickup, is still the best-selling truck in America, and has even extended its lead this year with an 8.5% increase in sales -- GM's Silverado and Sierra are down 5.2% and 6.6% year to date, respectively. Its Lincoln luxury marque, with its high-margin lineup, is on pace to post its fourth consecutive annual sales gain for the first time this century. And by most accounts the U.S. new vehicle market is positioned for years of strong sales, despite plateauing near record highs.
Let's also not forget the automaker's dividend yield is a juicy 5.33% -- and that's not including its special dividend, which will continue to return value to investors annually depending on Ford's profitability. If Hackett can prune back the bureaucracy that notoriously slows Ford's decision making, detox its corporate culture, and help it evolve into a more nimble company capable of reacting in a timely way to the rapidly evolving automotive industry, this is definitely a stock you shouldn't shun -- especially at these levels.
A bumpy ride
Between 2009 and 2015, Polaris Industries was a phenomenal investment; its stock price soared without so much as a speed bump. Among the driving forces behind the stock's rapid ascent were its strong reputation for innovation and for manufacturing high-quality off-road vehicles (ORV). That reputation enabled it to quickly gain market share and become the name brand in powersports.
Unfortunately, the company has stumbled since then as a series of recalls associated with fire hazards knocked its reputation down several notches and took a toll on on its bottom line -- and likely are much to blame for the 2 percentage points of the ORV market share it has lost. Its business also faced headwinds due to troubles in the oil and agriculture industries, foreign currency exchange rates, and declining dealer sentiment.
Image source: Polaris' March, 2017 investor presentation.
While those factors have weighed on its recent results, they will likely end up looking like temporary speed bumps over the long term, rather than harbingers of a crippling trend. This surely isn't the first time since 1954 the company has faced adversity. Plus, there were positive developments in 2016 as well; for example, it saw 20% retail growth from its Indian motorcycle brand, and its acquisition of Transamerican Auto Parts (TAP) folded a higher-margin business into the company.
Management continues to focus on improving its operations, opening new facilities in Alabama and South Dakota, and consolidating smaller factory operations elsewhere. Once the recalls are worked through, the stage should be set for improved bottom-line results. To achieve them, the company will need to repair its reputation for quality, continue developing innovative off-road vehicles, among other products, and fully integrate its TAP acquisition. While there are risks, those objectives are all very achievable; so don't be surprised if Polaris rebounds, and starts to returning value to shareholders again with a rising stock price and a dividend that currently yields 2.74%.
