Stock price when the opinion was issued
F has seen negative momentum over the past few years, falling from a high of $25 in early 2022 to $9 today. It pays a good yield of 8.4%, but this is mostly high due to its falling stock price. Sales are expected to be mostly flat over the next few years, and earnings are expected to fall in the near term, with some growth thereafter. The auto industry was at one time a rising and popular theme, but we have since likely reached peak auto, and the forward growth is not as attractive as it once was. It is cheap (6X forward earnings), but so far it has proven to be a value trap. We would look for opportunities elsewhere in the industrials segment.
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Ford and GM have some of the lowest PEs around (7.3x and 4.3x) vs. the 22x S&P average. Ford pays a 6.2% dividend yield, while GM has a huge buyback plan. Incredibly cheap--until the tariffs started. Remember: the car-makers were a huge reason why Trump used tariffs in his first term which lead to the USMCA trade deal. But now Trump wants to take away the qualities that made US cars competitive and affordable. Today, the car-makers got a one-month reprieve from Trump's tariffs and shares jumped. But if the car-makers wind up paying these tariffs, are we okay with the U.S. replacing cheap Mexican labour with expensive U.S. union labour? That's why these stocks are so cheap--their earnings are in grave danger. Value traps. A 25% tariff on Mexican imports is a subsidy for foreign car companies like Kia.
No, caller's not crazy to want to buy. There will be a chance to reimagine what the car industry will be. Current US administration will be very partial to US manufacturing. Cross-border tariffs on auto parts won't affect it as much as people feared. Traditional US car companies may be better value than some of the more hyped players.
Consumer discretionary stocks, particularly this one, tend to do well in the spring. There is a huge spike up from March through to May, but then we get into a period of seasonal weakness. Consumer discretionary stocks tend to do very poorly during the summer. Relative performance is still trending higher on this, so it looks like there are still investors coming into it. We are getting to the end of seasonal strength in a couple of weeks.