2022 has brought a gauntlet of challenges for automakers, from supply chain issues and rising inflation to war in Europe and lockdowns in China curtailing demand. But the flip side is that many of the stocks are now trading at favorable valuations. Many of the companies are creating compelling products and making significant progress toward an electric future, and many of them are returning capital to shareholders.
Two such examples are Ford (F +4.06%) and Stellantis (STLA +6.32%). Which one is a better buy for the long term?
Image source: Getty Images.
Battle of best-sellers
Both companies have a compelling current lineup of products. According to Car and Driver magazine, Ford sold three of the top 25 best-selling vehicles in the U.S. in 2021, including the best-selling vehicle in the country, the F-Series pickup, which sold over 725,000 units in the U.S. last year.
Stellantis matches that total with three top-25 vehicles of its own, the Jeep Wrangler, the Jeep Grand Cherokee, and the Ram pickup, which unseated the Chevy Silverado to take second place on the list (although with about 570,000 total sales, it still trails the F-series by a decent margin). Ford has also been racking up awards for its lineup. The Ford Maverick won North American Truck of the Year, and the Ford Bronco took the 2022 award for North American Utility Vehicle of the Year. The Mustang Mach-E also took the prize for Consumer Reports' top EV of 2022, knocking Tesla's Model 3 from its perch after a two-year stay there. Based on this award-winning lineup and the F-Series topping the charts as America's best-selling vehicle again, I will give Ford the edge for its product lineup. But with three vehicles of its own on the list and the Ram gaining ground, Stellantis is not far behind.
NYSE: STLA
Key Data Points
Electrifying the lineups
Stellantis and Ford are both making progress toward creating a compelling portfolio of electric vehicles. Stellantis is rolling out electric versions of two of its most popular models in the next couple of years -- an electric Jeep in 2023 and an electric Ram pickup in 2024. The company's Dare Forward 2030 plan calls for electric vehicles to make up 100% of the company's lineup in Europe and 50% of its U.S. lineup by 2030. Stellantis aims to have 25 electric models in the U.S. and 75 electric models globally. The company is also investing heavily in battery technology and production. Currently, Stellantis has 34 electric and hybrid models available, mostly outside of the U.S.
Ford is also making significant progress down this path and may even be a bit further along than Stellantis, with the Mustang Mach-E taking the aforementioned crown as Consumer Reports' top electric vehicle for 2022. The company is investing $50 billion into all-electric vehicles between now and 2026. The F-150 Lightning, the electric version of America's most popular truck, is in production now.
Creating electric vehicles that consumers are excited about isn't just window dressing or hype -- it can expand the company's customer base by bringing new customers who hadn't previously considered the brand into the fold. For example, Morningstar finds that 70% of Mustang Mach-E buyers are new to Ford. Similarly, 75% of the buyers who have reserved the electric F-150 Lightning are new to Ford. I will give Ford the win in this category based on its success so far, but Stellantis is closing in.
NYSE: F
Key Data Points
Rolling out returns
After pausing its dividend during the height of the pandemic, Ford resumed its dividend and currently yields just under 3%. Ford deserves credit for this solid yield and for quickly resuming its payout. However, this dividend pales in comparison to that of Stellantis, which currently yields 7.2%. Stellantis pays this dividend on an annual basis, and it is subject to change based on the performance of the business.
In addition to the generous dividend, Stellantis aims to return capital to shareholders with $5 billion of share buybacks by 2025. Ford has not repurchased shares since 2019. Share buybacks are beneficial to shareholders as they increase earnings per share and reduce the number of shares outstanding.
Rock-bottom valuations
As mentioned above, shares of automakers are cheap because the companies are dealing with a bevy of challenges, so perhaps this discount is warranted. That being said, shares of Ford look extremely cheap and these risks seem to already be accounted for in the stock price. Shares of Ford are changing hands at just under five times earnings. However, shares of Stellantis are even cheaper, trading at just over three times earnings, so Stellantis looks more appealing on a valuation basis.
And the winner is...
Ford and Stellantis both boast attractive portfolios of best-selling models. Ford has a slight edge thus far in terms of the popularity of its lineup and its progress toward creating a compelling lineup of electric vehicles. But overall, Stellantis looks like the better long-term investment due to its more attractive valuation and its superior returns to shareholders, including a substantial dividend and extensive buybacks going forward.
Meanwhile, Stellantis is making significant progress with its own portfolio, with the Ram clocking in as the second best-selling vehicle in the U.S., and electric offerings from Jeep and Ram hitting the market soon.
