Being early is indistinguishable from being wrong: Ford Motor Company

There have been a number of companies I’ve owned multiple times in my investing practice, among them Amazon, Home Depot, Apple, Walmart, and Ford.

While all but the latter have delivered satisfactory gains, Ford seems to be the one that I always seem to get wrong. But was I wrong or was I just early?

I was wrong.

My first position in Ford was in the early 2000’s and I barely have a memory of it because I didn’t start tracking and journaling about my investments until 2006. So, let’s call that initial position a mulligan.

The second time I owned it, the company was emerging from the Great Financial Crisis (2007-2009). CEO Alan Mulally took the helm in 2006 and in a stunning act of clairvoyance, mortgaged Ford’s assets to secure billions in loans in order to strengthen the company’s balance sheet and provide capital for a makeover of the company.

It’s better to be lucky than good.

The Great Financial Crisis, which included Torquemada-like scrutiny of loan servicing operations (like those of car companies that both build the car and provide the financing for consumers to buy said car), resulted in the bankruptcy of two of the three major auto companies. Of the “Detroit Three,” Ford was the only one that did not require government assistance.

In other words, I really liked the leadership of the company. So in 2010 I took a stake in Ford yet again at around $12. I held it for two years, watched it drop to $9, rebound to $12, where, fatigued, I sold it for a modest loss.

This is where I should say something to the effect of “but if I held it for a long term, patience would have paid off.” But it wouldn’t have. At this moment, Ford trades at around $15, so a long-term position in Ford would have netted around two and a quarter percent year-over-year gain…hardly a windfall.

And yet, as the title of this post suggests, I believe that Ford is worth looking at. They were not early to the electric car market, but they’re taking it seriously, and I believe they could hold a #2 market position within a few years.

Mulally was a brilliant executive because he excelled at building brand equity, communicating authenticity, and he was a very good capital allocator. The not-worth-mentioning leaders of the company that followed wanted Ford to be a ubiquitous car manufacturer or a historic car manufacturer or a cutting-edge car manufacturer. But they were not concerned with Ford being a profitable car manufacturer. The current CEO Jim Farley loves cars and he loves profitability. He’s closing down unprofitable lines and positioning EVs where they will get the most traction: The Ford F-150 (a marriage of torque and utility) and the Mustang (a marriage of torque and tech).

Ford is not early to the push to EV fleets. Its stock price reflects this sentiment. Its PE Ratio of 15 is low relative to its 5-year average of 17.7. Enterprise Value to EBITDA (a decent proxy for valuation based on cash flows) is 8.2. I like to see EV/EBITDA for most companies between 10-15, but auto companies usually trade at a discount to the market in PE and EV/EBITDA (Ford’s historical average is 8.6), but this includes significant drag from unprofitable production lines that have already been mothballed.

Bottom line: For the third time in my life, I have opened a position in Ford, and will be looking to add to that position over time. Ford looks wrong…again. But with good leaders in charge, they might just be early.

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