Stock market sell-offs can be scary, but they are also often the best times to buy shares of longtime stalwarts that have proven capable of navigating fierce storms -- particularly if those companies are preparing themselves for growth. For example, consider Ford (F 0.47%) and Boeing (BA -0.76%).
Both hold enviable positions in their respective industries, but have also faced their fair share of challenges that have weighed down on their stock prices. Both Ford and Boeing, though, are now trying to turn things around, and their efforts could set them up for bull runs in the near future. Here's why these two stocks are compelling buys right now.
Ford wants to make more money
Neha Chamaria (Ford): Ford's market capitalization topped $100 billion for the first time ever in January 2022. Shares of the iconic automaker hit a 20-year high as investors bet on CEO Jim Farley to turn it around with a focus on electric vehicles (EVs).
Less than a year and a half later, Ford stock has dropped 53% from that peak. Ford warned investors of unexpectedly high costs as 2022 progressed, partly because of inflation and supply chain constraints, and eventually ended the year with a net loss of $2 billion.
Farley didn't mince words during the company's fourth-quarter earnings release, though. "We should have done much better last year," he said, while also admitting that Ford left "$2 billion in profits on the table" due to factors that were within the company's control.
It is refreshing to see a management team admit its weak points and focus on making things better. At the capital markets day event it held on May 22, Ford highlighted how it is striving to cut costs while growing. For example, Ford expects to save at least $500 million in annual costs by modifying and eliminating some parts in its traditional internal combustion engine vehicles, including its best-seller, the F-150 pickup truck.
Ford will also reduce physical inventories of its electric vehicles "dramatically" as it changes its marketing strategies. At the same time, it is aggressively ramping up capacity and expects to produce 2 million EVs annually by 2026, up from only about 100,000 in 2022. Ford's EV sales are booming, led by its all-electric Ford-150 Lightning. Ford is also making batteries for EVs in-house, and just struck multiple agreements with three of the world's largest lithium suppliers.
Overall, Ford expects to boost its adjusted EBIT (earnings before interest and tax) margin from 6.6% in 2022 to 10% in 2026, generate higher free cash flows, and return 40% to 50% of its free cash to shareholders.
It won't be an easy road ahead for Ford, but its renewed focus on cost control and profitability should lift the stock price as those efforts start being reflected in Ford's financial numbers.
Boeing continues its march to $10 billion in free cash flow
Lee Samaha (Boeing): Down 53% from the all-time high it touched in 2019, aerospace giant Boeing has been through a tough few years. It's no coincidence that its peak occurred before the 737 MAX was grounded by governments worldwide after a pair of crashes. If that wasn't bad enough, the pandemic-necessitated lockdowns and restrictions on travel caused Boeing's earnings and cash flow to go one way and its debt to go the other.
It gets worse. A series of multibillion-dollar charges and cost overruns on fixed-price defense contracts (including Air Force One and the KC-46 tanker) have exacerbated Boeing's problems.
Boeing's tasks now are to deliver on its multiyear backlog of commercial airplanes (notably the 737 MAX and the 787 Dreamliner) and avoid charges on its defense contracts while generating the cash to reduce its $55.4 billion consolidated debt load.
That's no easy to-do list, and Boeing has disappointed investors this year with delivery shortfalls on the 737 MAX and yet more charges on a fixed-price defense contract (the KC-46 tanker program, yet again).
That said, CEO Dave Calhoun is taking a cautious approach to long-term guidance, steering investors toward a target of $10 billion in free cash flow at some point between 2025 and 2026. In addition, Boeing has added some heavyweight figures to its board of directors (including former United Technologies CFO Akhil Johri and former General Electric Aviation CEO David Joyce) to help Calhoun get there.
Moreover, Boeing continues to grow its order book, with 94 new orders for the 737 MAX in 2023 as of the end of April (and 44 for the 787). And in May, Ryanair ordered at least 150 737 MAXs with an option for 150 more.
And finally, the company's opening of a fourth 737 MAX production line in Everett, Washington, means it won't just be relying on its three production lines in Renton.
All told, it's going to be a bumpy ride, and investors will have to be patient, but Boeing looks like it's on the right track.
