Ford (F 1.14%) impressed investors when it reported that U.S. unit sales jumped 8.2% year over year in the third quarter (ended Sept. 30). Key models are doing very well, like the F-Series pickup trucks, Mustang Mach-E, Expedition, and Bronco. The momentum is partly why shares have done well this year, rising 15% (as of Oct.10).
But can this auto stock beat the market for buy-and-hold investors? History provides a clear answer.
Image source: Getty Images.
Investors shouldn't expect outsized long-term returns from Ford
In the past 10- and 20-year periods, Ford shares have generated total returns of 33% and 150%, respectively. These gains failed to exceed that of the S&P 500 index. And it's not even close.
The disappointing performance likely won't reverse course as we look to the next 10 or 20 years. Low growth, weak margins, huge capital expenditures, and cyclicality describe Ford's business. It's not controversial to say that this isn't a high-quality company.
Ford shares might always trade at a cheap valuation
Ford's valuation is dirt cheap. The market is offering the stock at a forward price-to-earnings ratio of 9, which makes the dividend yield hefty at 5.26%. This might look like a compelling opportunity.
However, there's no reason to assume that the market will expand Ford's valuation in the years ahead. Fast growth, wide margins, capital-light business models, and durable demand trends are traits that investors reward. Ford just doesn't fit the bill.
