The awards keep rolling in for Ford (F 0.47%). Ford recently won the prestigious awards for 2022 North American Truck of the Year (for the Ford Maverick) and 2022 North American Utility Vehicle of the Year (for the Ford Bronco) from the North American International Auto Show in Detroit. The Mustang Mach-E also just beat out Tesla's (TSLA 1.85%) Model 3 for the title of Consumer Reports' top EV for 2022, a watershed moment given the company's ambitions in the electric vehicle space .
With a 60% rally off of its 52-week low set over the summer, things have been pretty good for Ford and its shareholders overall. But the present looks like a good entry point for investors as shares are down 30% from their 52-week high. Ford still looks incredibly cheap on a variety of metrics, and there is plenty of room for upside ahead.
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Ford is being valued like a clunker
Ford is trading at a bargain-bin valuation of under four times this year's earnings. This is the type of valuations you would expect to see for a dying business, not a company that winning awards for its products and selling the most popular vehicle in the United States, the F-150 .
Part of the reason its valuation is depressed right now is because the global supply chain issues and the related semiconductor shortage are making it difficult to produce vehicles and get them out to consumers. Eventually, these should subside over the long term, and Ford and its peers could even end up benefiting from bottled-up demand when they do.
Taking a look at the price-to-earnings-growth (PEG) ratio shows Ford in an even more favorable light. The PEG ratio was designed to level the playing field between growth stocks and value stocks since traditional P/E ratios can make high-growth companies seem overvalued. The PEG ratio divides the price-to-earnings multiple by annual earnings-per-share growth. A stock with a PEG ratio under 1 is widely considered to be undervalued . Ford trades at the remarkably low PEG ratio of 0.05, meaning that shares look very cheap relative to Ford's growth prospects. Ultimately, the market is valuing Ford like a clunker you would find at the used car lot instead of as an industry leader.
Additionally, Ford has built up an impressive $12 of cash per share on its balance sheet and pays out a dividend that yields 2%. While this isn't a high enough yield for income investors to truly get excited about, it's a nice bonus from a company that is in growth mode, and it is good to see that the company reinstated the dividend after suspending it during 2020 due to market uncertainty stemming from COVID.
It's electric
The F-150 was already the best-selling vehicle in the U.S., and the Mustang is an iconic American muscle car. Encouragingly, the electric versions of these mainstays aren't just cannibalizing sales of the already-popular models -- they have brought a whole new swath of buyers into the fold for Ford. A reported 75% of reservation holders for the F-150 Lightning BEV consists of buyers who are new to Ford, and a similar 70% of Mustang Mach-E buyers are also new to the brand.
While Ford will not spin off its electric-vehicle division like some investors thought, it will separate traditional ICE vehicles and electric vehicles into two separate business divisions, Ford Blue and Ford Model e. Ford will break out the financial results of these businesses separately starting in 2023, which may help to give investors and analysts more insight into the growth and performance of the electric vehicle division, and in theory, help to boost the multiple that investors and analysts assign to this business.
Portfolio of winners
Outside of electric, Ford has an impressive portfolio of product lines. The aforementioned Bronco and Maverick look like winners. The F-150 series was the best-selling car in the U.S. in 2021, with over 700,000 sales . On top of that, Kelley Blue Book recently reported that, in the fourth quarter of 2021, more Americans considered buying a Ford than any other brand . This is the first time that another company has knocked Toyota off of its perch atop Kelley's Brand Watch survey in four years.
While Ford has underperfomed the S&P 500 over a long timeframe, I believe the company is worthy of a reevaluation by investors. CEO Jim Farley only took over in March 2020 and the company hired former Apple and Tesla executive Doug Field in 2021. Time will tell if they will help Ford to turn over a new leaf and they will need to execute on these strategies to drive meaningful returns for Ford shareholders, but the early results look promising in my book. Between this attractive and innovative product portfolio; increasing success in the electric vehicle space; bringing new buyers into the fold of the Ford brand; and its rock-bottom valuation. Ford looks like a buy.
