You'd struggle to find a lot of companies that have stood the test of time like Ford Motor Company (F 0.14%) has. Founded in 1903, the Detroit carmaker continues to be an important part of the overall U.S. economy. And it sells one of the most popular vehicles around in the F-Series line of pickup trucks, which demonstrates strong buyer interest.
Shares are experiencing solid momentum recently. As of July 14, they're up 18% this year. That gain is well ahead of the 6% rise for the S&P 500 index. Does this make the automotive stock a buy now?
Image source: Ford.
A short-lived demand surge
The current White House administration's trade policies have impacted Ford, whose management team implemented price incentives to drive demand. The business offered employee pricing to all customers, a strategy that brought in buyers.
During the second quarter, Ford reported an impressive 14.2% year-over-year jump in vehicle unit sales. Sales of pickup trucks were up 15.1%, while the Lincoln luxury banner saw a monster 31% increase, the biggest gain in 18 years. This data clearly shows consumers' willingness to spend on new cars before tariffs start to have a more meaningful impact on the auto sector and broader economy.
But investors shouldn't expect Ford's double-digit gains to keep up. In fact, it's best to temper expectations. This is a low-growth enterprise, as the overall industry is very mature. Ford raked in $185 billion in revenue in 2024, just 28% higher than a decade before in 2014. The recent change in trade policy has undoubtedly given Ford a short-term boost. However, it's likely not going to last, as the recent pull-forward in demand could lead to weaker sales in the back half of the year.
The other thing investors need to keep in mind is how cyclical car companies usually are. Buying a new vehicle is the second-largest purchase for most people. This purchase decision can be delayed when economic times worsen. As a result, Ford's revenue could take a major hit. And if there's a recession on the horizon, the company's slim profit margins could pave the way for net losses.
Shares are cheap
Besides the recent sales surge, which I view as a temporary phenomenon, the only other reason investors might want to scoop up Ford stock right now is due to the dividend yield of 5.12%. Income investors might be interested in this opportunity, as shares trade at a price-to-earnings ratio of 9.4.
The stock's valuation might be too difficult to ignore. But I believe Ford shares are cheap for a reason. This business has been around for a very long time, although I don't think it's a high-quality company.
Cyclicality and low profits were already mentioned. In the past decade, Ford's operating margin has averaged just 2%. This puts the dividend in jeopardy should economic conditions take a turn for the worse. Put differently, investors shouldn't be surprised if Ford suddenly cuts its dividend to conserve cash in the event it faces financial difficulties.
A look at recent history will paint a clear picture. Had an investor bought $10,000 of Ford stock in July 2015, that stake would be worth $13,840 today. Even including the dividend, buying shares would have netted a total return of only 38.4% over a 10-year time horizon. That's a disappointing track record.
The best strategy for investors to achieve long-term success is to work on building a diversified portfolio of at least 25 stocks. However, this doesn't mean you need to own companies in all sectors and industries. Avoiding mass-market carmakers like Ford is generally a good rule of thumb to always keep in mind.
