At the time of this writing on the afternoon of Dec. 30, 2024, the S&P 500 has generated a total return of 27% in 2024. It's been another fantastic year to be an investor in the stock market.
However, not all companies have benefited from the rally. Ford (F +0.08%) continues to pump the brakes for shareholders, producing a total return in 2024 that would've lost investors 12% of their initial capital outlay.
Should you buy this Detroit automotive stock while it trades just a hair below $10 per share?
Ford's bull case
Ford's Pro segment, which houses its commercial operations that sell vehicles and services to other businesses, has been a bright spot for the company. In the latest three-month period, third-quarter 2024 (ended Oct. 31), revenue was up 13% year over year, with the division posting an operating margin of 11.6%. That's well ahead of Ford's overall operating margin of 1.9%.
Another obvious bull argument for investors is Ford's dividend payout. The current yield, now at 6.04%, is compelling for income investors. The company's history of consistent profitability helps it keep returning capital to shareholders like this.
Risk factors too hard to ignore
For an iconic automaker that has long been a pillar of the American economy and that consumers are undoubtedly familiar with, there is no shortage of reasons why investors should avoid this stock at all costs.
The auto industry has been focused on transitioning to a sustainable future, and nearly all manufacturers are investing in electric vehicles (EVs). Ford is no different, but the results have been disappointing thus far. In the last nine months, the company registered a worrying $3.7 billion operating loss in its Model e EV segment.
NYSE: F
Key Data Points
Businesses that possess an economic moat, or durable competitive advantages, are high-quality entities that should be on investors' radars. I don't believe Ford falls into this category. That's because competition is simply too intense for Ford to stand out, both on the domestic and international front. There are much larger brands out there that are all fighting for consumer wallet share, with price, quality, and features all key buying factors.
In the past five years, Ford's return on invested capital has averaged just 2.2%, well below the 10% average of the S&P 500. This is a clear indication that there is no moat present, as the company is unable to earn returns that are in excess of its weighted average cost of capital.
Ford also lacks in terms of reporting strong financial metrics in key areas. For starters, growth is weak, thanks in part to the global industry for passenger vehicles being very mature. 2023's revenue of $176 billion was just 20% higher than it was 10 years before.
The company's operating margin in the last five years has averaged a disappointing 1.5%. Perhaps even more striking is the fact that Ford hasn't exhibited economies of scale or cost advantages, as the company's operating margin has not expanded over the years. Ford has massive expenses -- including for research and development, labor, and commodities -- that it has had trouble leveraging.
Ford and other automakers are cyclical, which just means that their financial performance is heavily influenced by the whims of the broader economic backdrop. High unemployment and weak consumer confidence, for example, can hurt sales, as can higher interest rates. Cars are also huge purchases, so households can delay buying them when times get tough, pressuring demand.
Ford shares might be trading 73% below their peak at a price lower than $10. But this is a stock that long-term investors are better off keeping out of their portfolios.
