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Stocks of the Week!

In this email:

• Profit Through the Potholes 🚧

• Cheaper Car Insurance💰️ 

Profit Through the Potholes 🚧

Ford’s been vibing in neutral this year. I’ve had a few trades totaling 8%+ profit. Not awful but when the S&P500 is up over 32% in the same time period you can’t help but feel maybe the cash would’ve been better off parked there.

But I’ve not written them off yet! There’s a few adjustments that could land us with a 15-25% profit. Come take a drive with me. 🛣️ 

The Good Stuff: Dividends Galore 💸

If you like cash flow (who doesn’t?), Ford’s got you covered. They’re throwing off a regular quarterly dividend of $0.15 per share, which is a pretty spicy 5.4% yield. That’s also more than double the industry average.

There’s more….

Ford have a supplemental dividend adding another $0.19 to $0.39 per share. That bumps the total yield to 7%.

In short, if the stock keeps staying flat we’ll make 7%. That’s a pretty decent insurance policy. And if it makes the moves I’m hoping for the big fat dividend is a nice bonus.

The Bad Stuff: Warranty Nightmares 🛠️

Now let’s address the elephant in the showroom. Ford’s been the most-recalled automaker for three years running.😬 Warranty costs hit $13.3B this year (+23% YoY), which is... not ideal.

It’s been a drag on their earnings. EBIT margins are taking hits:

• Ford Blue: Margins down to 6.2% (-0.5 YoY)

• Ford Pro: Margins at 11.6% (-0.4 YoY)

• Overall: EBIT margins now at 5.5%, down from a peak of 7.3% in 2021

The good news? Management has promised things are turning around. They’ve been tweaking quality control & expect the recalls to be in the rearview mirror by 2025.

Once they’ve sorted this out, it’ll be a straightforward boost on margins. Just eliminating an unnecessary cost.

The Nerdy Stuff: Hybrids & Diversification 📊

Ford’s hybrid sales are popping off, up 44.6% YoY. Their commercial fleet division, Ford Pro, is printing money, too. It brought in $50.7B in sales (+19% YoY) with pretty fat margins at 14.6%.

Ford isn’t betting the house on EVs like a Tesla but that’s not what they’re famous for so why would they?

They’ve got a balanced portfolio of hybrids, gas guzzlers & electrics. Add in demand from retail, government, rental fleets, & you’ve got a company that can pivot based on what the market wants. And the best part is….

Price? Bargain Bin Territory 🏷️

At a forward P/E of 6.1x, Ford’s trading at bargain-bin levels. That’s below its 5-year average of 7.97x & way cheaper than the sector median of 17.75x.

Just to be clear, cheap isn’t always good. You want value. But you find get that with Ford.

A lot of the pessimism around slower adoption of EVs in Europe & the expensive warranty costs is already baked in, in my opinion. That’s why price has been holding flat rather than tanking.

Any pullbacks that take them below $10 with the current fundamentals is a no-brainer buy for me. Take my money.

Once they’ve got a handle on the warranty issue & keep doing what they’re doing in other departments I think we’ll get moving up & to the right again. 📈 

My first price target is around $13 which is a 15% upside from current price. If all looks good here, I might consider a look at $14.50 which would be closer to 27% profit.

So is Ford a Buy? 🚦

For quick flip? Ford might not be your speed. It’s a slow steady dividend play. But if you’re happy to wait for those warranty issues to smooth out like me (2025 isn’t that far away), this is a decent hold.

Tried & trusted car manufacturer with a plan to increase margins & an 7% dividend yield if all else fails. I think that’s worth at least a test drive with a small part of my portfolio.

Cheaper Car Insurance💰️

Are you overpaying for car insurance?

With rates rising 20% over the last year, you may be paying more than you need to on car insurance.

Switching providers could save you hundreds a year on your premium, after all – and in this economy, that’s more than welcomed.

Check out Money’s Best Car Insurance list and see if you can save.

COMPARE COVERAGE

That’s all! See you same time next week 👋 

P.S Hit reply & let me know what you thought of this weeks newsletter. All feedback is welcomed ❤️