Ford stock can go higher by taking a page of out Detroit rival GM’s playbook
Ford needs to close the gap with GM. We think Ford can do this by following GM’s lead on buybacks, in addition to refining its EV and hybrid portfolio and controlling warranty expenses. Shares of club name Ford are up about 7% so far this year, far behind General Motors Co.’s nearly 22% gain over the same period. The performance differences, while discouraging, can be attributed to a variety of factors, including different methods of returning cash to shareholders. GM is buying back a lot of stock; Ford, so far, not so much. “Besides some short-term negatives, GM has no reason to move forward and Ford is hesitant,” Jim Cramer said at the CNBC Investment Club monthly meeting in March. “The stock is priced is wrong…it should have gone much higher. I certainly hope they do a massive buyback like GM did. That would be amazing.” In fact, since the Nov. 29 announcement of a $10 billion Since the accelerated U.S. dollar buyback program, General Motors’ stock price has soared by about 50%. Ford is up just under 26% over the same period — respectable in its own right but significantly behind General Motors. Before the buyback news was revealed at the end of the year, Ford’s stock price had fallen 10%, less than General Motors’ 14% decline. While overall stocks performed well last year, auto stocks were weighed down by a strike by the United Auto Workers that resulted in union concessions. Capital Returns Ford is no slouch when it comes to capital returns, with an annual dividend yield of 4.6% and a commitment to return 40% to 50% of free cash flow to shareholders. In order to increase the dividend yield to 50% in 2023, the company chose to declare its second supplemental dividend in as many years in February. But, as we wrote at the time and Jim reiterated recently, we favored Ford using the excess cash for buybacks. In 2023, Ford spent $5.33 billion on dividends and stock repurchases, of which only 6.3% was spent on repurchases. The situation at General Motors is roughly the opposite. Last year, the company spent $11.7 billion on dividends and stock buybacks, with dividends accounting for just over 5% of the total. Redburn Atlantic auto analyst Adrian Yanoshik told CNBC: “The idea of returning capital to shareholders is an important theme that has emerged in the industry since General Motors announced a $10 billion buyback.” The move “gives some car OEMs ( There’s been some pressure on the original equipment manufacturer’s (OEM) management team to return cash to shareholders in a thoughtful way.” Electric Vehicles vs. Hybrids Another reason for GM’s recent outperformance is that management expects electric vehicle interest rates to increase by 2025. Pre-tax margins will be in the mid-single digits. Last year, Ford said it expected electric vehicle profit margins to reach 8% by 2026. That goal. Both companies are losing money on electric vehicles. However, all that could change as demand for electric vehicles weakens and automakers rush to lower sticker prices. Against this backdrop, Ford said last week it would delay production of new all-electric large SUVs and pickup trucks and shift to offering hybrid models across its entire North American lineup by 2030. Ford had made clear its move to hybrid vehicles before the announcement, adding details surrounding the strategy. Jim had long believed that switching to hybrid cars was a smart move given their recent strong sales. Following Ford’s announcement on April 4, Morgan Stanley auto analyst Adam Jonas raised his price target on the stock to $17 per share from $16 and maintained an overweight rating equivalent to a buy. Jonas believes slower EV adoption is good for Ford’s free cash flow outlook and capital return profile. In a report this week, Jonas reiterated his overweight rating on GM and issued a warning. He said, “General Motors has effectively abandoned hybrid vehicles in the process of promoting pure BEV (battery electric vehicle) architecture…but may have to increase investment in hybrid vehicles from here.” Jonas said, He prefers Ford to General Motors. Warranty Costs One of the headwinds facing Ford is increased warranty costs due to recalls and troubled new vehicle launches. In the third quarter, Ford’s warranty-related costs increased by $1.2 billion — an unexpected headwind that contributed to the lower quarterly results. In its guidance for fourth-quarter data, Ford said it expects full-year warranty costs in 2024 to be flat compared to the same period last year. At last month’s Bank of America Automotive Conference, Ford Chief Financial Officer John Lawler said that “a small amount of inventory” is being accumulated to ensure quality levels and standards at the end of the first quarter, and the company will release it in April. The report was released on March 24th. “This is a very short-term issue, but in this industry, the short-term does matter,” said Redburn’s Yanoshik. (Jim Cramer’s Charitable Trust is Long F. For a full list of stocks, visit See here.) As a subscriber to Jim Cramer’s CNBC Investing Club, you will receive trade alerts before Jim Cramer makes his trades. Jim waits 45 minutes after sending a trade alert before buying or selling stocks in his charitable trust portfolio. If Jim talked about a stock on CNBC TV, he would wait 72 hours after issuing a trade alert before executing the trade. The investment club information above is subject to our Terms and Conditions and Privacy Policy and our Disclaimer. No fiduciary duty or obligation is created or created by any information you receive in connection with the Investment Club. No specific results or profits are guaranteed.
General Motors’ global headquarters is located in the Detroit Renaissance Center.
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