Investors on the hunt for a good deal right now may be eyeing Ford Motor Company (F 1.98%). It's understandable that the automaker is at the top of some investors' lists, considering that the company pays an impressive dividend yield above 6% and its shares are trading at an attractive valuation compared to the rest of the market. Its shares have a price-to-earnings multiple of 10 compared to an average of 29 for the S&P 500 index.
But despite the stock being a relatively good deal and the company paying an impressive dividend, there are some risks facing Ford right now that investors should be aware of, too. Here are a couple of them and why it's probably not time to buy Ford stock.
Image source: Ford.
Tariffs could cost Ford $1.5 billion
To say that there's a lot of uncertainty in the automotive industry right now would be a huge understatement. President Donald Trump's auto tariffs, introduced in April, have caused panic among automakers large and small as they try to navigate an increasingly complex parts and production environment.
The dust hasn't settled on the tariff uncertainty, but one thing is for sure: Tariffs hurt automakers, including Ford. The company has about 17% of its North American production in Mexico and Canada, and Ford's management said that the result of tariffs will be an adverse adjusted impact of $1.5 billion on its earnings this year. Management also said that "due to tariff-related uncertainty," it was pulling its full-year earnings and revenue guidance.
While Ford may not be as exposed to tariff impacts as some automakers, it's clear that the company could feel the pinch nonetheless. And with tariff negotiations still ongoing, it's unclear how much they might continue to impact Ford over the next few years.
Car buyers are getting jittery about the economy
There's some evidence that prospective car buyers have turned their noses up at shelling out tens of thousands of dollars for a new vehicle. While there was an initial rush of buying cars when tariffs were announced, consumer surveys are already showing that buyers are holding off on big purchases as they grow cautious about the economy.
Ford knows this, and it's why the company launched an employee pricing incentive just a few months ago. Most recently, it introduced a new incentive program for the summer called "0-0-0," in which customers can buy a new Ford for $0 down, pay 0% interest for 48 months, and make no payments for the first 90 days.
The hope is that the new incentive will get buyers off the sidelines and spur sales. But even if it helps in the short term, many buyers may wait until all of the tariff uncertainty is over before they feel comfortable committing to an expensive new vehicle. And while most economists have backed away from some of their most dire warnings after tariffs were first announced, some still put the odds of a recession over the next year at 40%.
NYSE: F
Key Data Points
Ford's stock is unlikely to outpace the market
Ford's shares have tumbled 17% over the past 10 years, while the S&P 500 has soared more than 200%. That's not a great track record for an investment and while Ford could always come up with some new product or service that causes its shares to soar, it's pretty unlikely. Most large automakers are making slow changes to their businesses, and this sluggish pace of innovation typically doesn't lead to impressive stock price jumps.
Sure, automakers -- Ford included -- experienced a share price surge a couple of years ago when electric vehicle (EV) interest was on the rise, but Ford's stock has given up all those gains since then, and its EV future is a bit unstable. Consider that the company's EV segment is still in the red, losing $849 million in the first quarter, at a time when the federal government just axed EV tax credit incentives and is fighting with states over funding for EV charging infrastructure.
In short, there doesn't appear to be a major catalyst on the horizon for Ford's stock. As such, it's probably better to put your money elsewhere. And if history is any predictor, an S&P 500 exchange-traded fund might end up being a better bet.
