If you've got $1,000 left over from holiday spending and you're interested in buying some cheap stocks, Ford Motor Company (F 0.54%) has a unique blend of value and dividend yield that might interest you.
Not only does the venerable automaker trade at a cheap price-to-earnings ratio of 7, but it also offers a dividend yield over 5% and has solid upside potential in the coming couple of years as it turns its cash-burning electric vehicle (EV) business into a profitable operation.
No headaches here
While the automotive industry is poised to evolve more in the coming two decades than in the past century, thanks to a transition to EVs and potential groundbreaking technology for driverless vehicles, the truth is these are expensive undertakings.
Ford admitted as much to investors when it threw in the towel on Argo AI and took a $2.7 billion charge. At the time, management simply stated that while there is a future for the technology, it didn't necessarily have to be Ford that spent capital to research, test, and develop driverless vehicles.
Fast-forward to today and that decision looks quite a bit better as cross-town rival General Motors has been plagued with constant headaches from Cruise -- once valued at roughly $30 billion. In fact, Cruise has lost roughly $8 billion since 2017 and hopes for it generating $50 billion in revenue by 2030 seem more far-fetched than ever.
With Ford's focus on improving Level 2 and 3 driverless systems, which would be adding more profitable options and features to its vehicles, it could remove a very big profitable black hole from Ford compared to its biggest rival.
NYSE: F
Key Data Points
Burning $4.5 billion
Another positive aspect for Ford's upside is the turnaround in its Model e business unit. Ford currently estimates its Model e, which comprises all of its EV products, will lose roughly $4.5 billion in 2023 alone -- that's a lot of capital.
The good news for investors is that those mega losses will only be felt in the near term, and management expects Ford's Model e unit to work its way to profitability by the end of 2026 through improved scale, design, and other factors.
Image source: Ford Motor Company.
As scale is Ford's biggest lever to pull to improve profitability, it's a good sign that the company just posted record fourth-quarter EV sales to help drive the Ford brand to No. 2 in the U.S. EV market. Digging into the details of Ford's record fourth quarter EV sales, you'll find the F-150 Lightning surging 74% compared to the prior year.
The F-150 Lightning was the No. 1 selling electric truck and the F-150 Hybrid was the No. 1 selling full-size hybrid truck in 2023. That's excellent news because Ford will one day have to transfer its dominance in the gasoline powered truck segment -- which Detroit automakers have thoroughly dominated for decades -- into the EV truck segment, as the vehicles will remain a pillar of profitability for the companies.
The dividend difference
One big reason to buy and hold Ford if you have $1,000 to invest is simply the company's dividend. Not only does Ford have a rich history of dishing out supplemental and special dividends, such as recently when it cashed out its position in Rivian Automotive and gave investors a welcomed $0.65-per-share special dividend, but the company's total return also dwarfs its stock price gains over the long term largely thanks to its healthy and consistent dividend.
Ultimately, while Ford's stock price has failed to gain traction in recent years, there's plenty of upside in the near term as the Detroit icon's EVs drive from burning cash into turning profits and the company's focus is no longer developing expensive driverless vehicle technology. Plus, the 5% dividend yield will pay you as those developments help drive the company's bottom line.
