You might already know that one of the best ways to invest is via the stock market. You probably also know that the Ford Motor Company makes up a large, important part of American history. (After all, Henry Ford was the first major industrialist to enact 8-hour workdays and ushered in the age of mass production.)
Think Ford might be a perfect fit for your portfolio? We’ll explain how to buy Ford stock in our step-by-step guide.
A Brief History of Ford
Ford Motor Company (NYSE:F) is a multinational corporation founded in 1903 by Henry Ford. The company is headquartered in Detroit, Michigan, and over the years, expanded to include Lincoln, Jaguar, Volvo, Land Rover, Aston Martin and Mercury.
- Although Ford Motor Company only owns Ford and Lincoln now, it still has some of the highest sales in the United States and is on par with General Motors (NYSE:GM) and Fiat Chrysler (NYSE:FCAU).
- Ford turned into a penny stock during 2008’s financial crisis. Inch by inch, Ford turned it around and by 2015, had record profits.
- Most recently, Ford’s leadership in the hybrid vehicle market has enhanced its future possibilities. Ford expanded its mobility unit in 2018 by purchasing 2 transportation software companies, Automatic and TransLoc.
- Even so, the F-150 is the best-selling vehicle in America (and has been for almost 40 years.)
- After discussions with the heads of General Motors and Fiat Chrysler in March of 2020, Ford agreed with the Detroit Auto Workers union to partially shut down its factories on a rotating basis due to the COVID-19 pandemic. The company then reported a loss of $2 billion in the first quarter of 2020 on a 15% drop in sales.
- The stock came back after the shutdowns to reach a 52-week high of $13.62 and report 2020 revenues of $127.14 billion and a gross profit of $6.12 billion.
Pros and Cons of Ford Stock
Ford is one of the most intriguing financial assets in the automotive industry, and here, we’ve listed both the pros and cons of owning Ford Motor Company stock.
Pros
- Possibly undervalued: The price of Ford stock is currently around $8.80 per share (as of December 29, 2020). This is relatively low compared to past price action, particularly compared to where it traded before the Great Recession hit.
- Decent beta: The 5-year beta of Ford stock is 1.28 relative to the S&P 500 stock market index. This means the stock is more volatile than the overall benchmark index and riskier than the average investment-grade stock.
- Stronger than expected truck demand during the pandemic: Due to the COVID-19 pandemic, demand for Ford trucks has skyrocketed — a key factor in the company reporting an adjusted $0.65 earnings per share (EPS) in 2020’s third quarter compared to an analyst consensus of $0.19.
Cons
- Bearish trend: The long term charts show that Ford stock currently trends in a bearish direction, although the near term trend has been upward. The major trend is nearly 5 years old, and it looks very consistent. Notice that the price is currently very close to its trend line. This means we might soon see a correction in a bearish direction. A break through the trend line would give us an indication that the price is changing direction within an upside correction.
Price chart of Ford Motor Company stock. Source: TradingView.
- Struggling environment: The overall U.S automobile industry is struggling as it attempts to adapt to rapid technological trends and the COVID-19 pandemic. Car manufacturing must be positioned in the electric vehicle market these days. Ford is currently working on a plan for its exposure to the electric car market. A more clear vision will definitely boost trust in the stock’s future.
- Benchmark correlation: Since the industry is struggling, the absolute benchmark correlation means that whenever the market struggles, this stock is also likely to struggle.
- High P/E ratio: The trailing 12 month price-to-earnings ratio is 41.11 (December 29, 2020). This means that the price of Ford stock is relatively high compared to what the company is earning.
Candlestick chart of Ford Motor Company’s stock price with the value of First Trust Nasdaq Global Auto Index Fund shown in orange. Source: TradingView.
- Market underperformance: Above, you can see Ford’s stock price and the benchmark First Trust Nasdaq Global Auto Index Fund (orange). The benchmark and Ford’s stock vied for dominance in 2017, but the benchmark has since largely bested Ford’s performance while showing peaks and troughs in similar time frames.
That graph also shows how the spread between the two has more than doubled since the COVID-19 pandemic shutdowns hit the U.S. in March 2020 and prompted a sharp sell-off in both Ford stock and the index fund. That notable decline was then followed by a substantial rebound in both markets, although the rally was clearly stronger in the index fund than in Ford’s share price.
How to Purchase Ford Stock
Purchasing Ford stock requires a little bit of research before you get going. First, choose a reliable broker to buy and sell shares. The most important characteristic of a reliable stock trading broker is the financial regulatory rules it conforms to. Check on fees, reviews of the platform, accessibility and devices for trading, research offerings and ease of use.
Three of the biggest online stock trading brokers are Ally, E*TRADE and TD Ameritrade. These U.S-based brokers conform to all U.S. regulatory requirements. Another indication of high reliability and strong company goals is the fact that all 3 brokers are listed and publicly traded on a stock exchange.
- Choose a brokerage.
Decide which qualities you want in a broker. Looking for low fees? High-quality market research? Platform diversification? Do in-depth research so you know which broker offers exactly what you want and need. That way, you can choose the broker that works best for you.
- Open a trading account.
Go to the official website of the brokerage agency you’ve chosen and click on the “Open an Account” button. Next, choose your preferred account type, and this part will require some personal information, like your full name and address. Some brokers will ask you to prove how much money you have in order to make sure you aren’t risking money you can't afford to lose.
You’ll need to confirm your email by clicking on a link in a message you’ll be able to find in your inbox. You’ll need to confirm your account by sending an identification document to prevent financial fraud. - Deposit funds in your account.
Next, go to your broker’s website and deposit funds. You’ll be able to choose from various payment methods to complete the transaction. Remember, don't deposit and trade with funds you cannot afford to lose.
- Access your trading platform.
Navigate to the platform from your browser and log in with the account information provided by your broker.
You’ll need to download an installation file from the website of the broker if you prefer to use the desktop version of the platform. Launch that file and go through a standard installation process, which will create a .exe file on your desktop. Launch the trading platform and log in with your account information.
Download the mobile trading app of the broker, launch the app and log in with your account information. - Buy Ford stock.
Open the market watch of your trading platform and look for Ford, Ford Motor Company or F, which is Ford’s stock symbol. Double click it when you find it and this will open a trading box.
Choose how many shares you want to buy. Make sure you follow risk management rules. Never invest all your money in a single trade and never risk more than 1% to 2% per trade. You can control your risk with a stop-loss order, which limits any potential losses.
Finally, apply it to the fields in the trading box and implement the trade.
Best Online Brokers
Is Ford Stock the Best Option for You?
Ford is one of the pioneers in the automobile industry and it’s no wonder investors have always been drawn to it. If you want to diversify your portfolio by holding shares from the automotive market, Ford may be a good choice for you.
One of the ways for a standard auto manufacturer to survive is by expanding its business into electric cars to compete with companies like Tesla (NASDAQ:TSLA), a step Ford has already taken. Dedicating a significant segment of its production to all-electric vehicles, Ford now has an all-electric Mustang, Transit Van and the aforementioned F-150.
With the price of Ford’s stock at almost $9 per share after a recent rebound in its share price and truck sales despite the ongoing COVID-19 pandemic, the stock could still appreciate going forward. That might well depend on whether the overall market continues trading upward since the relatively high unemployment levels seen since March may inhibit both the market’s gains and Ford’s sales numbers until the pandemic and its associated shutdowns subside.