There's no getting around it -- 2022 has not been a good year for automakers. Stocks of all major manufacturers, whether fossil fuel or electric vehicles, are down by double-digit percentages. The seasonally adjusted annualized rate (SAAR) for new light-duty vehicle sales in August is about 13 million units, which is a 14% drop from the year-ago period.
However, August's sales themselves were up 6% from last year and 3% higher than July. So while the year-to-date numbers show the industry is still in a steep funk, this could be a sign that car sales may begin growing again. Either way, Ford (F 1.88%) is a stock that investors should have on their watch lists. It's my top auto stock to buy and hold forever.
An industry stuck in neutral
Automakers are finding it difficult to sell cars this year. Inventories on dealer lots are slack due to supply chain snarls caused by ongoing COVID-19 lockdowns, such as those in China, while Russia's invasion of Ukraine has exacerbated the problem.
Shipments of critical components like computer chips ended up being delayed, causing new models to become unavailable on showroom floors. Many manufacturers responded by shipping vehicles without chips for non-safety related controls, such as air conditioning, just so they had something to sell.
China, though, has imposed yet another round of strict lockdowns, this time in the important manufacturing city of Chengdu, which accounts for 1.7% of the country's economy and is home to plants for some of the world's most important companies, including Apple and Toyota. Disruptions in the global supply chains are not likely to be over anytime soon.
However, auto manufacturers have been able to snap back to some extent. Ford had a successful August, marking the second consecutive month its vehicles were the top-selling brand and the third straight month that sales rose.
Even when Ford's F-series of trucks lost their top-selling status for a single quarter last year, they snapped back in the following period, ending 2021 as the best-selling vehicle in the country. That's an unparalleled 44 consecutive years of having the most popular truck in the country.
Ford has been performing better than the industry
Ford sold over 158,000 vehicles in August, a 27% increase over last year and well ahead of the industry's 4.8% gain. That allowed it to gain an additional 2.4 percentage points of market share, giving it a total of 13.4%.
Demand across its entire portfolio of vehicles remains strong, whether truck, SUV, car, or electric, with each segment outpacing the industry.
Truck sales grew 13% in August, SUV sales were up 48%, car sales jumped 49%, and EV sales quadrupled to just shy of 5,900 units, with the F-150 Lightning having its best month since its launch. Ford says the Lightning is the best-selling electric truck in the country, and the F-150 hybrid is the best-selling hybrid truck. The Mustang Mach-E electric muscle car saw sales more than double in the month.
That bodes well for Ford's long-term growth, because where Stellantis is looking to be fully electric by 2028 and General Motors by 2035, Ford is hedging its bets by keeping a good portion of its fleet fossil-fuel based. Not that it's ignoring alternative-fuel vehicles -- a good portion of the 3,000 layoffs Ford announced are coming from its workers making internal combustion engine plants in Dearborn, Michigan. It plans to use the savings to invest more in electrics, but that may be a bumpier road than planned.
A solid long-term pick
Ford is solidly focused on the future. It ended the second quarter with $49 billion in cash, equivalents, and short-term investments, enough to offset the $17 billion in long-term debt it has, excluding Ford Credit. It also has a $45 billion line of credit that can be used to further finance its growth.
Ford's stock was an outstanding performer in 2021, rising 136% for the year, only to turn south this year as pressures from supply chains and the broader market downturn weighed on its shares. Year-to-date Ford is down 25%, but at just seven times trailing earnings, five times next year's estimates, and just 13 times the free cash flow it produces, the automaker's stock is cheap to buy now.
It's true that Ford has not always been a stellar stock to buy, routinely underperforming the S&P 500. Since 2000, its stock is down 50%, but over the past decade the automaker seemed to find its groove and its return on invested capital markedly improved, doubling in value.
That came about as Ford focused less on sedans and leaned more heavily into trucks and SUVs, which by some accounts represents 97% of its U.S. business. It resulted in some loss in overall market share, but improved profitability (and its truck market share improved). Ford also generated significant free cash flow, more than $34 billion worth over the past 10 years.
With its sights set on being able to sell whatever cars and trucks consumers want to buy in the future, Ford is a stock that investors can feel confident holding for a long time to come.