After a home, cars are probably the second most important purchase that most consumers make in their lives. And they are an essential part of a typical household, allowing people to get to work, run errands, and travel to see loved ones.
What's more, the automotive sector in the U.S. is so massive in terms of the number of employees there are. The industry supports over 1 million manufacturing jobs domestically, according to data from Statista.
Consequently, investors might be thinking about ways to gain exposure to this important market. And you might be looking at Ford Motor Company (F 0.45%) as one of the best automotive stocks out there. But can buying stock in the Detroit carmaker set you up for life?
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The ingredients for incredible returns are obvious
If you're trying to identify companies that can set you up for life, it's really a search for monster returns. This means a 50-fold or 100-fold gain over several decades, for instance.
One of the key factors to look for, unsurprisingly, is big growth potential. Here's one area that Ford doesn't excel in. Between the third quarter of 2015 and Q3 2025, automotive revenue increased by a compound annual rate of 2.8%.
The overall industry is very mature, despite the introduction of electric vehicles. Car unit volumes don't rise by much over time. And demand can be extremely cyclical. This doesn't provide a favorable backdrop.
A muted top-line outlook paves the way for subpar earnings growth. In Ford's case, it hasn't exemplified operating leverage, a situation in which profits increase at a faster rate than sales. Costs for materials and labor are significant, resulting in tiny margins. And Ford must also invest in research and development and manufacturing capabilities just to keep up with competitors.
Just based on revenue and earnings trends, Ford is not a stock that will set you up for life.
NYSE: F
Key Data Points
Valuation and dividends
Value investors might still be interested. That's because shares in the automaker trade at a forward price-to-earnings ratio of 9.8. For certain market participants, this deal might be too hard to pass up.
Dividend investors could also take a closer look. The current dividend yield of 4.37% provides a hefty income stream. However, this isn't the safest payout given how exposed Ford's demand is to macroeconomic forces.
Even if you do decide to buy the stock due to the valuation and dividends, don't expect to outperform the market. In the last decade, Ford's total return was 100% (as of Feb. 3), while the S&P 500's was 335%.
