Ford Motor Company (F +1.68%) has just wrapped up an impressive year. In 2025, the maker of the very popular F-Series trucks saw its shares rise 33%. Even Tesla can't compete with this type of gain.
Market sentiment improved dramatically for the Detroit automaker. It's hard for investors to have any complaints.
Should you buy this automotive stock while it's trading below $15 per share (a level last achieved in summer 2023)? For long-term investors who want to beat the market, the answer is clear as day.
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Ford's market-thumping performance might be a one-off occurrence
One of the most impactful ways that investors can upgrade their portfolios is by focusing exclusively on the highest-quality stocks. Since these come from the most outstanding businesses, it's not too difficult to identify them.
Certain traits tend to stand out. For example, companies that collect recurring revenue are desirable because they sell products or services that drive repeat purchases, which adds stability and predictability.
Unfortunately, Ford doesn't fit the bill here. Cars are huge purchases that households make infrequently, and they're cyclical. In recessionary periods, you can be sure that many consumers will delay buying a new vehicle to save money. Factors like interest rates, unemployment, inflation, and gas prices can all have a big impact.
The automaker's operations include huge expenses and capital expenditures, whether that's for its labor force, supplies and materials, factories, warranties, or research and development. Cutting back in any of these areas is risky since the company won't keep up with competitors, which all possess deep resources. Consequently, Ford typically posts discouraging profits, and its quarterly operating margin has averaged just 2.5% in the past five years.
The company has also proved that it struggles to accurately forecast the direction and pace of industry change. It recently announced a sizable $19.5 billion in special charges related to the restructuring of its overall business, with electric vehicle (EV) operations also being pared back.
NYSE: F
Key Data Points
This is a costly mistake that shareholders should not overlook. To be fair, even EV market experts overestimated how quickly the auto industry would make the sustainable transition. This points to the lack of significant growth opportunities in the auto sector, which naturally limits the potential for revenue and profit gains.
These adverse attributes help explain why the automaker's shares have underperformed the market drastically in the past 10 years. The auto stock has produced a total return of 61%, well below the S&P 500's 297%.
No catalysts are on the horizon that would make investors believe the next 10 years will be any different. Ford will likely continue having a subpar track record when it comes to compounding shareholder capital.
Bargain hunters and dividend investors
Ford might be of interest to value investors who seek to buy businesses when they're trading at attractive valuations. Ford stock currently has a forward price-to-earnings ratio of 9.3. Compared to the 22.3 multiple of the S&P 500, this is a big discount.
Ford will probably never be deserving of a valuation ratio that's in line with the broader index. That's because of those previously mentioned characteristics. The market is aware that this is a subpar business.
The stock pays a dividend yield of 4.54%, with the quarterly payout being $0.15. This might be compelling for income investors. When it comes to the dividend, however, even that isn't totally safe.
In an economic downturn, demand for Ford vehicles will be under pressure, which can hurt sales, which would also hurt profits. And management could pause the dividend to conserve cash.
Ford's dividend might not increase, and it's been temporarily halted in the past. There is certainly the risk that this will happen again at some point in the future. Even though shares are below $15, investors should avoid them.
