Key Points
- Ford Motor shares are trading at just 5.3X forward earnings with $7.24 in cash-per-share, paying a 5.67% annual dividend rate, with strong tailwinds from interest rate cuts to spur demand and lessen its interest expense burden.
- Under Armour is finally seeing gross margin improvement up 260 bps in fiscal Q2 2024 from supply chain and freight cost benefits and normalization of off-price sales.
- Plug Power shares collapsed nearly 40% to multi-year lows on its Q3 2023 top and bottom line miss and a "going concern" warning in its 10-Q. Still, the company sees the liquid hydrogen supply starting to recover, with its own Tennessee plant expected to come back online by year's end.
- 5 stocks we like better than Ford Motor
In the iconic classic tale of "A Christmas Carol," Ebenezer Scrooge is a cold and frugal cheapskate. But the geezer wouldn’t pass up an opportunity at a bargain. These three stocks have been beaten down and tossed away. But a closer look at the fundamentals and impending catalysts like interest cuts could mark a turning point in 2024.
Since the equities markets are always forward-looking, moving stocks months to quarters ahead of catalysts triggering, it makes sense to consider scooping up these bargains before the new year. Here are three stocks that even tightwad Scrooge couldn’t pass up.
On Nov. 2, 2023, Ford reported that October 2023 sales fell 5.3% YoY to 149,938 units. As a member of the Auto/Tires/Trucks sector, sales have been sluggish due to high-interest rates, weak consumer spending and inventory overload. The United Auto Workers (UAW) union labor contract settlement will cost Ford an extra $8.8 billion over the life of the contract expiring in April 2028.
Ford stated this would add an extra $900 to the price tag of their cars, putting more pressure on the consumer as used car prices continue to fall. High-interest rates have made it more expensive to finance car purchases and have systematically limited who can qualify for an auto loan. Retail vehicle inventory levels rose by 43.7% YoY in November 2023, but transaction prices have fallen by 1.9% YoY.
EV costs are too high as demand wanes.
Additionally, the electric vehicle (EV) trend has gotten the big three automakers to invest heavily in electrification, only to see demand waning as General Motors Inc. NYSE: GM recently announced it was curtailing and slowing down its EV investment. The high costs and weakening demand is also causing Ford to slow down its EV production.
Interest rate cuts could spur demand.
With all the negative impacts, it's no wonder shares of Ford recently hit two-year lows at $9.63 at the end of October 2023. However, there is one catalyst that may turn things around… interest rate cuts. The U.S. Federal Reserve (Fed) smothered lending demand with its aggressive interest rate hikes, but the consensus not only believes that rate hikes are over but also that rate cuts will commence earlier in 2024. With $142.6 billion in long-term debt and $324 million in Q3 2023 interest expense, interest rate cut benefits would go straight to the bottom line.
Strong balance sheet
Ford shares are trading at 5.54X forward earnings, have $29 billion or $7.24 cash per share, and pay a 5.67% annual dividend yield. The company still made a profit of $1.2 billion in Q3 2023 as revenues rose 11% YoY to $44 billion.
Post-strike updated financial full-year 2023 forecast
The company updated its guidance on Nov. 30, 2023, after settling the UAW labor contracts. Its post-strike outlook expects full-year 2023 adjusted earnings before interest and taxes (EBIT) of $10 billion to $10.5 billion. This includes the impact of $1.7 billion in strike-related lost profits, of which $1.6 billion was impacted in the fourth quarter.
This was attributed to the production interruption of high-margin trucks and SUVs, causing vehicle wholesale sales to be around 100,000 less than planned. Full-year 2023 adjusted cash flows are expected to be between $5 billion and $5.5 billion.
Ford Motor analyst ratings and price targets are at MarketBeat. Ford Motor peers and competitor stocks can be found with the MarketBeat stock screener.
Daily ascending triangle breakout attempt
The daily candlestick chart for F indicates an attempt at an ascending triangle breakout. The flat-top resistance trendline is at $10.57. The ascending trendline commenced at the $9.67 swing low on Nov. 10, 2023, as it made higher lows, driving shares to test the flat-top trendline for a breakout. The daily relative strength index (RSI) is attempting to rise through the 50-band. The daily 200-period moving average resistance is at $12.01. Pullback support levels are at $10.18, $9.87, $9.52 and $9.02. Check out the sector heatmap on MarketBeat.
Under Armour has a new CEO focused on cutting inventory levels to drive margins. The Ozempic weight-loss trend has caused an indirect surge in protein bars and powder consumption and athleisure wear. Exercise is recommended when taking GLP-1 drugs, as studies have shown clear weight loss when combined with diet and exercise.
While companies like BellRing Brands Inc NYSE: BRBR are seeing a surge for its protein products attributed to the diet side, Under Armor may be seeing the surge coming from the exercise side with its athletic apparel and footwear. Under Armour is trading at 17.5X forward earnings, which is a discount to the industry, with Nike Inc. NYSE: NKE trading at 30X forward earnings and Lululemon Athletica Inc. NASDAQ: LULU trading at 38.4X forward earnings.
Improving margins on flat revenues
On Nov. 8, 2023, Under Armour reported its fiscal Q2 2024 GAAP EPS of 24 cents, beating analyst estimates of 20 cents by 4 cents. Net income was $110 million. Revenues rose 1.9% YoY to $1.57 billion, matching analyst estimates. Gross margins improved by 260 bps to 48%, driven by the supply chain, lower freight prices and normalization of off-price sales. The company ended the quarter with $656 million in cash and cash equivalents and an untouched $1.1 billion credit revolver. The company repurchased 7.6 million shares or $50 million of its common shares.
Metrics
Wholesale revenues fell 1% to $940 million, but direct-to-consumer (DTC) rose 3% to $596 million, driven by a 2% rise in e-commerce revenues. North American revenues fell 2% to $991 million, while international revenues climbed 5% to $573 million. Apparel revenues climbed 3% to $1.1 billion, while Footwear revenues dropped 7% to $351 million, and Accessories rose 3% to $114 million.
Mixed guidance
Guidance for the fiscal full year 2024 was cut, expecting revenues to fall 2% to 4%, attributed to weakness in North American sales, from previous guidance of flat to up. However, gross margins are expected to rise from 100 bps to 125 bps versus earlier estimates of 25 bps to 75 bps. The full-year 2024 EPS is expected to be between 47 cents and 51 cents versus the consensus estimate of 49 cents.
CEO comments
Under Armour CEO Stephanie Linnartz commented, "Our second quarter results, particularly profitability, exceeded our expectations," She continued, "Consequently, we are maintaining our fiscal 2024 operating income and EPS outlook even as we lower our revenue expectations primarily in response to challenges in North America during the back half of the year."
Under Armour analyst ratings and price targets are at MarketBeat.
After reaching heights of $75.49 in January 2021, shares of hydrogen fuel cell energy, systems and solutions provider Plug Power have collapsed north of 95%, hitting lows of $3.25 in November 2023. Shares took a swan dive, losing 37% of their value on their Q3 2023 earnings disaster and the dreaded "going concern" warnings in the 10-Q. Going concern warnings are taken very seriously as it means there's substantial doubt that the company can continue operating normally without having to raise capital, liquidate some assets, or restructure its obligations. What would Scrooge do?
Plug your noses
Scrooge would plug his nose when reading the 10-Q filing but would be tempted by the opportunity. Plug Power missed on EPS, losing 47 cents per share versus 31 cents consensus analyst estimates, a 16-cent miss. Revenues rose 5.4% to 198.71 million but fell short of the $219.57 million analyst estimates. This was attributed to a number of disruptions, as pointed out by the company, "The liquid hydrogen market in North America has been severely constrained by multiple frequent force majeure events, leading to volume constraints which have delayed Plug's deployments and service margin improvements.”
CEO sees light at the end of the tunnel
Plug CEO Andrew Marsh attributed the shortfall to the availability of hydrogen due to downed plants and temporary plan outages. Demand has outstripped supply, driving up hydrogen prices through the roof, doubling its normal price to as much as $30 per kilogram. Plug has been moving hydrogen from the East to the West Coast in response.
Hydrogen supply stabilizing as Tennessee plant expected back online by year’s end.
Marsh sees a light at the end of the tunnel, “Good news is the network has now stabilized, and many of these planned outages have subsided, plus additional capacity will be coming online. We expect our Tennessee plant to be back online producing hydrogen by the end of the year. This plant, when fully operational, provides about 20% of our production needs.” He continued, “One of our major suppliers is upgrading one of their facilities to allow the plant to operate at full nameplate capacity in the coming months. The planned output has been producing between 0% to 25% of capacity.”
Plug Power analyst ratings and price targets are at MarketBeat.
Before you consider Ford Motor, you'll want to hear this.
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