American Companies on Sale: Where to Invest
The stock market's recent sell off has caused many nervous investors to move their money out of the market and onto the sidelines. This has created tons of opportunity for experienced and novice investors.
In this article we take a look at three American companies that have been around a long time, over 300 years combined. All three experienced sell offs and are in different stages of their investment cycle. We have a company that's trading very close to its bottom, another that is not to far from it's bottom, and the third that looks to be in the early stages of moving upwards. The three companies reviewed are American business hall of famers, but all have experienced a few tough years (some more than others). But now may be the time to add these companies to the portfolio, so lets take a look.
The 112 year old company that brought the world the Model-T and the mastery of the assembly line has fallen on hard times. With new management at the helm will 2018 be the year Ford's stock takes off?
Where the Stock is Now
Currently trading at $10.61 per share with a dividend yield of 5.66% at the time of this writing, Ford's stock has been on a slow decline since hitting $17.25 back in 2014.
Car buyers see Ford's line up as stale, there has not been much good news coming out of Ford and that is reflected in its stock price. Also, Moody's recently made a down grade to Ford's rating from stable to negative citing, "a more challenging operating environment." If reading the bad for Ford has you ready to move on to the next stock, we don't blame you.
The Car Market
January 2018 was a mixed bag for the U.S. auto industry. Car sales dropped 10% when compared to sales in January 2017. However pick-up trucks saw 5% growth versus January 2017 and cross-over vehicles saw almost 14% growth versus January 2017. How did this impact Ford? Not well at all, for January 2018 Ford reported a 23% decrease in car sales compared to January 2017, a decrease of 5% in SUV sales compared to January 2017, but pick-up truck sales increased by 2% versus January 2017. NADA, the National Automobile Dealers Association forecast 16.7 million new cars and light trucks sold in the U.S. in 2018. The expectation for 2018 is less than the 17.2 million vehicles in sold in 2017, but it still hints to good demand in the U.S.
Catalyst and Future Events That Could Move Ford's Stock
New Ford Chief Executive Officer Jim Hackett is said to have a creative management approach. He will need to muster up every bit of his imagination and creativity to get Ford turned around. Ford's current turnaround plan includes cutting $14 billion in cost and investing $11 billion in to their electric-powered vehicles. Ford also has plans to roll out a fleet of driverless cars for ride-hailing / ride-sharing service by 2021. The company that made its name selling cars is embracing the ride-hailing / ride sharing wave. The company was approved in London to operate its Chariot minibus service, designed to service the growing demand of people in cities that wish to make trips but prefer not to buy cars. Ford's Chariot bus already operates in NewYork, Columbus, Austin and San Francisco.
What to Love About Ford
From a valuation standpoint the companies trailing P/E, P/S, P/B, and P/CF are lower than some of it's main competitors, the industry and sector averages. Then there is the 5.6% dividend the company offers. And sales of the Lincoln Navigator in January 2018 saw a 97% increase when compared to Navigator sales in January 2017. Ford is having trouble keeping up with demand for the Lincoln Navigators, even the higher priced models. The company is expected to increase production of the Expedition and the Navigator to meet the growing demand.
What to Hate About Ford
Analyst expected revenue growth of 0.90% for Ford in 2018, nothing to really write home about.
What We Think of Ford as an Investment
We believe from our review of Ford, if the company is able grow revenue slightly or stay flat over the next five years, and cut $14 billion of expenses as planned, the stock will trade in the $15 to $17 range. If you're looking for a high flier, Ford isn't it. Any investor in Ford will likely make more from the dividend than from capital gains over the next three to five years.
General Electric (GE)
Around since the 1880's and trading publicly since the 1890's, GE is one of the 12 original Dow Jones Components. General Electric has been able to navigate the Great Depression, the dot-com bust, 9/11, and the Great Recession, but it is having a hard time thriving during the current nine year bull run.
Where the Stock is Now
Currently GE trades at $15.05per share. The stock has lost over 50% of it's value since hitting $31 per share in early 2017. GE was the worst performing stock of the Dow Jones Industrial Average in 2017, not a title any company really wants to hold. GE currently has a dividend yield of 3.19%.
Bad management is to blame for GE's current situation, under former CEO Jeff Immelt the company spent unwisely, mismanaged assets, made questionable deals, and may have allowed some questionable accounting under his watch. Then there is the reduction in dividend which occurred a few months ago. If you believe that it is darkest before the dawn, GE might be your type of investment, because it's pretty dark.
GE operates in many different markets, and they're not just a jack of all trades, GE has actually mastered a few the markets they participate in. GE Power is a world leader in power generation, and GE Aviation is a world leading provider of aviation jets. In the fourth quarter, GE reported that GE Healthcare is stable in the U.S. and in European markets, but experiencing double digit growth in emerging markets. Besides the three just listed there are nine other divisions with in GE, and not all of them are performing like well oiled machines.
Catalyst and Future Events That Could Move GE's Stock
A possible breakup of GE could unlock the value of GE and really reward the shareholders. Wall Street Analyst have pushed for a breakup for years