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• Ford successfully accomplished the sale of certainly one of its production plants in India this week.
• The move may very well be a part of an even bigger pivot for Ford’s transition to specializing in growing its EV sales.
• The upcoming recession nonetheless might throw a spanner within the works.
• 5 stocks we value more highly than Ford Motor

The Ford Motor Company (NYSE:F) stock price has gained significant traction over the past five days because it’s currently up over 8 percent on the time of writing.

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Shares of the automaker rallied on 10 Jan amid news that certainly one of Ford India’s manufacturing plants was successfully acquired by Tata Motors (NYSE:TTM). The sale had a complete value of Rs 725.7 crore (US 88.82 million) and shall be a large money injection for the corporate.

Along with strengthening Ford’s balance sheet, other aspects are at play here that would relieve weary Ford investors. Let’s investigate.

Ford makes a pivot to US manufacturing?

Considered one of the essential causes for Ford’s decision to shut down its plant in India is that it has made a median operating lack of $200 million per 12 months over the past decade.

Cost savings are the plain incentive for Ford to shut down these unprofitable facilities, however it could equally be a part of a greater pivot into the electrical vehicle (EV) space. The US and Europe are poised to be the most important EV markets, while low-wage economies equivalent to India aren’t the goal market.

Some funds from selling these plants could then be diverted to assist strengthen its position within the North American EV region. This scenario seems likely, provided that Ford pledged to expand its Rogue Electric Vehicle Center in December last 12 months.

Ford said it will make a 335,000-square-foot expansion to its facility, which is projected to lift its annual production capability to 150,000 F-150 units upon completion by 2023. Considering this figure, only 13,258 F-150s were produced last 12 months, so Ford is expecting a 1031.39% production increase at the positioning in a single 12 months, churning out a median of 12,500 F-150s per thirty days.

Is Ford a buy ahead of the recession?

Something which can throw a spanner within the works for Ford’s EV transition is the approaching recession, which could have an outweighed effect on automotive stocks.

The automotive industry is very cyclical and particularly vulnerable to economic downturns. During a recession, consumer spending decreases, and other people are likely to delay large purchases, equivalent to buying a brand new automotive. This leads to lower sales and profits for automotive firms, causing their stock prices to suffer.

When consumer spending decreases, individuals are more more likely to hold onto their existing vehicles for longer periods of time as an alternative of trading up for a brand new one. Which means that demand for brand new cars decreases, and automakers find it difficult to sell the stock of cars they’ve already built. This puts pressure on the businesses bottom lines and may end up in large losses for investors.

As well as, with fewer people in a position to afford latest cars, the used automotive market becomes saturated. This results in a decrease in the worth of used cars, which might further reduce automakers’ profits.

How would this affect Ford’s fundamentals?

What this implies for Ford is that it may very well be a case of bad timing. Forecasting a rapid rise in EV production on the depths of a bear market won’t be essentially the most feasible plan of action. Although Ford’s long-term debt has been falling over the previous couple of years, its earnings have also been everywhere.

Ford’s net income last 12 months surged to $17.93 billion, while the 12 months prior, its net income was negative at a $1.27 billion loss. The volatility in Ford’s earnings continued within the prior years, jumping between $47 million and $7.73 billion.

Since Ford’s earnings have been historically volatile already, a slowdown in its sales because of a depressed economy could shatter investors’ sentiment regarding the stock. This is very true as people seek to maneuver their funds into more defensive ventures, and a big scaling of Ford’s capital expenditure to achieve its lofty production targets doesn’t meet this requirement.

One silver lining of a recession is that it could allow EV battery manufacturers to stockpile resources equivalent to cobalt, which is a critical element in producing the cathode, thus potentially resulting in discounts for EV automotive makers in the longer term.

Do you have to invest $1,000 in Ford Motor right away?

Before you think about Ford Motor, you will need to listen to this.

MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients each day. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to purchase now before the broader market catches on… and Ford Motor wasn’t on the list.

While Ford Motor currently has a “Hold” rating amongst analysts, top-rated analysts imagine these five stocks are higher buys.

Article by Matthew North, MarketBeat