For the past 48 consecutive years, Ford (F 0.69%) has sold America's most popular passenger vehicle line. I'm talking about the F-Series pickup trucks. To achieve a feat like this in any industry is amazing. And it makes this business a staple of the American economy and a visible brand for consumers.
Ford has had a great year thus far. As of June 11, shares are up 9% in 2025, tripling the gain of the S&P 500 index. Maybe this automotive stock can continue the momentum as we look ahead.
Should investors buy Ford shares while they currently trade below $11? Here are the most important variables to consider.
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Ford's momentum is impressive
Investors don't typically view Ford as a fast-growing enterprise. However, the company's growth this year has been impressive. Unit sales soared 16.3% in May. This follows double-digit year-over-year gains in March and April as well.
After President Trump announced a 25% tariff on imported vehicles in April, Ford's leadership team made a strategic move to boost demand. The business implemented an employee pricing program for customers. This will be in effect until the Fourth of July weekend.
Ford registered strong gains with its internal combustion and hybrid cars, but electric vehicles (EVs) remained a notable weak point. Unit sales for EVs were down 25% in May, underscoring the troubles facing this niche of the auto market. Consumer demand for what many thought was the future of the industry is slowing.
High capital intensity
Investors who intend to own a stock for the next five or 10 years need to figure out if they're looking at a high-quality business. I believe there is a best way to test this, at least from a purely quantitative perspective.
During the first quarter, Ford reported a return on invested capital (ROIC) of 8.6%. This is too low for me; I'd only look at companies that have a figure of more than 20% here, as it indicates the ability to allocate capital in a lucrative manner. Ford's weighted average cost of capital (WACC), on the other hand, is estimated at 11.1%, so the business could very well be destroying value with its decisions.
Ideally, investors want to buy and hold businesses that report ROIC that's well ahead of their WACC. I don't think Ford will ever fall into this category. The nature of the auto industry requires companies to invest huge sums in product development, manufacturing capacity, labor, and marketing. And this is just table stakes. That's why Ford's profitability is low.
NYSE: F
Key Data Points
Distracted by a cheap valuation and hefty dividend
Making a successful investment decision involves two key aspects, in my view. The first step is to identify a high-quality business. The next is to make sure you buy shares at a compelling valuation, to give yourself a margin of safety.
On the valuation front, Ford deserves a closer look. As of June 11, shares are trading hands at a price-to-earnings ratio of 8.6. For comparison's sake, the S&P 500 trades at a multiple of 23.4. This discount is hard to ignore. Consequently, it means that Ford stock offers a hefty dividend yield of 5.6%.
The stock might be cheap, but as previously mentioned, I don't think Ford is a high-quality business. The dividend payout, for instance, is far from durable. Should an economic downturn occur, as they happen occasionally, Ford's profits will undoubtedly come under pressure. And management could pause dividends until the economy improves.
In the past decade, shares have produced a total return of just 21%. That track record speaks for itself. Even though the stock price sits below $11, investors focused on capital appreciation should avoid Ford.
