President Trump's recent tariff announcement is kneecapping stocks far and wide. Some of the biggest losers have been automotive companies, who face some of the steepest tariffs. Specifically, Ford's (F 2.12%) stock has already suffered under the threat of 25% tariffs on Mexico and Canada imports, and the potential economic fallout could hurt the company and its peers even further.
The result is that Ford's stock is down nearly 9% over the past six months, pushing its share price to under $10 as of this writing (April 4). That price is no doubt beginning to look attractive to some investors.
But is Ford's stock a good deal? Let's take a look.
Image source: Ford.
At first blush, Ford may seem tempting
Whenever a significant sell-off occurs, it's smart to look around for stocks that might be a good deal. With Ford's recent share price plunge, the stock has a price-to-earnings ratio of just 6.5, far below the S&P 500 index's average of 26.6. That seems like a cheap stock by nearly any measure.
Plus, some investors have their eyes on Ford's impressive annual yield of about 6%. Dividend investors on the hunt for high-paying yields and cheap stock prices may be tempted to think they've found exactly what they're looking for in Ford.
After all, Ford has been through tough times before, and, at times, its stock has weathered it pretty well. In the first three years of the COVID pandemic, Ford's stock soared 170% compared to the S&P 500's 69% gain. The pandemic was an uncertain time for automakers amid shuttered manufacturing plants, uncertain economic conditions, and semiconductor shortages. Still, the company performed relatively well.
But here's where things get dicey
It's difficult to know where to start, but tariffs are as good a place as any. President Trump's 25% tariffs on automotive imports from Mexico and Canada will have significant effects on Ford. The company has about 17% of its North American production in the two countries, and the high tariffs will no doubt weigh on the company's financials. Of course, Ford makes and sells vehicles globally, so the worldwide impact of U.S. tariffs, and any reciprocal tariffs from other countries, could be devastating to the auto industry.
NYSE: F
Key Data Points
Car prices could rise by $4,000 to $15,000, or 13.5% on average. That would significantly hamper new vehicle sales. The average new car payment is already a whopping $738 per month. The Wall Street Journal estimates that tariffs on a new car payment could amount to 15% of a buyer's monthly income, making affordability even more difficult than it is now.
Here are Ford's worries, in its own words from CEO James Farley, on the fourth-quarter earnings call:
"There is no question that tariffs at a 25% level from Canada and Mexico, if they're protracted, would have a huge impact on our industry with billions of dollars of industry profits wiped out and adverse effect on the U.S. jobs, as well as the entire value system in our industry. Tariffs would also mean higher prices for customers."
So, not great. Now that tariffs are here and no longer hypothetical, investors have to weigh the long-term implications. And for Ford, there's simply nothing positive about all of this.
The verdict: Ford stock is not a buy
Trump's tariffs are disastrous for the automotive industry. Even if some manufacturing eventually comes back to the U.S. -- which is supposed to be the goal of all of this -- it'll take years for manufacturing to ramp up. The hard truth is that high tariffs, high prices, and the potential for an economic slowdown as a result could have negative implications for automakers over the next few years.
Ford looks cheap, but its stock isn't worth the risk right now.
