Ford Motor (NYSE:F) trounced the market in October with a 15% gain compared to a 3% decline in the S&P 500. The stock is poised for continued growth as its margin-boosting restructuring strategy takes shape. Let's explore the reasons why this iconic American automaker is my top Robinhood stock to buy in November. 

Ford truck in desert landscape.

Image Source: Getty Images.

Why Ford?

Value stocks are shares in companies that trade at relatively low multiples compared to their earnings and growth potential. Ford isn't the quintessential value stock because it doesn't generate consistent profits. But management has taken steps to turn things around with an ambitious restructuring strategy that is already showing results. 

The plan involves eliminating redundancy in Ford's workforce and product lineup. The company underwent significant layoffs in 2019 and plans to continue the trend in 2020 by slashing an additional 1,400 salaried positions before the end of the year. Ford has also streamlined its U.S. vehicle lineup by ending the production of several sedan brands, including the Focus, Fiesta, and Taurus. Higher-margin trucks and SUVs now make up 91% of vehicle sales compared to 87% in the prior-year period. 

Ford plans to continue this trend with the launch of its new F-150 pickup truck, Mustang Mach-E electric SUV, and Bronco Sport SUV in the fourth quarter of 2020. The company hasn't revealed exactly how much profit it expects these vehicles to generate, but the impacts could be substantial. 

Morgan Stanley analyst Adam Jonas estimates that Ford's F-series trucks are responsible for 90% of the automaker's global profits (companywide net income totaled $47 million in 2019 and $3.68 billion in 2018). And an analyst at Credit Suisse thinks the Bronco could boost profits by up to $1 billion if annual sales reach 125,000. As for the new Mustang, Ford's former CEO Jim Hackett revealed that he expects the Mach E to be profitable "on vehicle number one" -- although it will have to cover its hefty research and development (R&D) costs to bring value to investors.  

The strategy is already showing results

Bulls eye on money

Image Source: Getty Images.

While Ford's future looks bright, the company's third-quarter earnings show that its restructuring strategy is already taking shape. Revenue increased 1% year over year to $38 billion, representing a massive improvement from the second quarter, which fell by 50% because of coronavirus-related headwinds in the automotive industry. 

Ford's bottom line also posted a dramatic improvement with adjusted EBIT up 100% to $3.6 billion. The company now reports a companywide adjusted EBIT margin of 9.7% -- up from 4.8% this time last year. 

Ford's North American business boasts an EBIT margin of 12.5% and represented $3.2 billion of the $3.6 billion in EBIT generated in the third quarter. The company's credit arm also performed well with an EBIT of $1.1 billion. Ford's European and Chinese business segments are still a drain on earnings, and management will have to work hard to cut costs and improve performance in these money-losing regions. The 2021 rollout of the Mustang Mach-E in Europe and China could help turn things around because, as mentioned earlier management expects this vehicle to be profitable. 

More value for investors

Ford generated $118.6 billion in revenue over the trailing 12 months and has a market cap of $31 billion. These numbers give the stock a price-to-sales multiple (P/S) of just 0.26, compared to P/S of 0.44 for General Motors and 15 for Tesla. The low valuation makes sense right now, considering Ford's slow sales growth and weak margins. But as Ford's plan to get back in gear gains speed, it could represent an opportunity to scoop up shares on the cheap. 

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.