Latest Bout Of Market Volatility Sees Shares Dip Near Penny Stock Territory
Whether it’s Sprint (S-Free Report), Nio Inc. (NIO-Free Report) or even Fitbit (FIT-Free Report) we’ve covered our fair share of companies that fell from grace. And while we’ve seen timely turnarounds for all 3, the initial drop has been a signal to the markets that all may not be well. With the aforementioned companies, each was dealing with their own individual demons. Sprint had its dealings with the FCC and states attempting to block the T-Mobile merger.
Nio, Inc. missed earnings and reported bleak guidance. Fitbit came in light on its earnings and had trouble innovating. That was obviously before Google (GOOG-Free Report) agreed to buy the company. But in light of this, our readers were abreast of the entire lifecycle of these moves, both to the downside and then to the upside thereafter. In each case, we’ve done our best to report on the risks while also remaining steadfast in reporting potential reasons if/when these stocks might reverse course. In all three cases, we made arguments for and against bull markets for each.
- Coronavirus Penny Stocks You Might Have Missed
- Best Penny Stocks To Buy Before The Second Quarter? 3 Names To Know
Is Ford Motors (F-Free Report) the next name on this list to sink to penny stock territory while trying to figure out how to resolve underlying issues? While March 9th could be a bad day to give any such insight, the overall trend, in general, hasn’t been the best for Ford this year. Realistically, Ford stock has been embroiled in a downtrend that has lasted since 2014.
Is Ford Motor Company About To Join The List Of Penny Stocks?
If you take a simplistic look at a 10-year chart for Ford stock, you can see a few things. Between 2009 and 2013/2014, shares of Ford Motor stock had clear breakouts and breakdowns. The first run had the stock running over 260% from the end of 2009 to early 2011. From there the stock dropped 53% from 2011 to mid-2012. Then, Ford stock had its last hurrah jumping from around $8.82 in 2012 to highs of over $18 in late 2013 to mid-2014.
Since then, the overall trend has been down. Sure, there’ve been intermittent jumps here and there paying short-term traders along the way. But for the long-term Ford investor, the ride has been bumpy and it looks like the chassis is starting to wear even more in 2020. It has become quite evident the Ford Motors needs help. Shares dropped to their lowest prices since July of 2009. The difference here is that in July of 2009, the trend was a bullish one as Ford stock was on the move to its initial 2011 high of nearly $19.
So what happened this year and will it trigger more favor to the downside? Well, the standard bearish story starts with dismal financial results. The company announced a fourth-quarter loss of $0.42 per share and saw its fiscal 2019 earnings drop $0.91 to $0.01 per share.
“Our execution was simply not nearly good enough (in 2019). An example of this was the manufacturing launch of our all-new Explorer. The lost volumes in Chicago during ramp-up marred the year … (Let) me make this very clear. Our leadership team is determined to return to world-class levels of operational execution.”Jim Hackett, Ford CEO
The long and short of it is 2019’s performance missed the company’s own expectations. And while the company “took accountability,” it doesn’t help the situation.
Can Its New COO Shift Things Into High Gear?
Incoming COO, Jim Farley shook up the C-suite. He replaced former COO Joe Hinrichs after a 19-year run at the automotive company and brings his own set of expertise to the table. Farley held the president position for new businesses, technology, and strategy. He’s now responsible or all global operations and future technology. This obviously includes things like self-driving cars and expanded EV development.
Farley started his COO position at the start of March, but so far, he’s inherited a sh*tshow so far. Shares of Ford stock opened on March 2 at $7.11 and by March 9th, it hit lows of $5.87. Farley previously won praise for leading the company into talks with Volkswagen AG. This eventually led to a tie-up last year to develop driverless and electric cars. But fast-forward to right now and the bullish sentiment has all but disappeared.
Despite all of the potential Farley may have, it couldn’t help fix underlying pitfalls from his inherited position. Last month, another blow to the company sent shares tumbling. The company issued a recall for over a quarter of a million Ford and Lincoln vehicles from 2013 to 2018. It wasn’t a simple horn or faulty seat adjustment mechanism.
It was in the vehicles’ suspension that increased the risk of a crash. While the company explained it wasn’t aware of any such incidents (yet), it prudently issued the recall. On top of that, the company just issued a safety recall for certain 2020 F-Series Super Duty and 2021 E-Series vehicles. The recall was based on the fact that the ultimate outcome could be driveshaft separation from the rear axle. Let’s also not forget the very recent proposed compensation deal for nearly 2 million owners and former owners of Ford Fiesta and Focus vehicles. They could be eligible for some form of compensation.
A History Of Missteps
This latest recalls fall in line with previous missteps by the company that resulted in more recalls. Last December the company recalled more than half a million 2017-2019 Ford Super Duty SuperCrew vehicles for “fire dangers”. The company also recalled 2017-2019 Ford F-250, -350, and -450 Super Duty vehicles for unintended tailgate openings.
Last April saw a recall of some 327k 2015-2019 F-150’s and 2017-2019 Super Duty trucks equipped with engine block heaters to make repairs from a prior recall in December 2018. This was when Ford recalled nearly 900,000 trucks for fire risks associated with the engine block heater. Last February, the company recalled almost 1.5 million 2011-2013 F-150 trucks because of a possible transmission problem.
But Farley said he is focused on fixing Ford’s problems. He aims to start accelerating Chief Executive Officer Jim Hackett’s $11 billion turnaround plan and growing its business. The first step will be launching new models, smoothly; the keyword here is “smoothly”. With a history of missteps, however, that will be a tall order right now.
“We need to immediately fix the reliability of our cost performance and especially our launches. We’re launching very, very expensive products. So the first one is to really fix our execution capability around launches, warranty costs, delivery and revenue. I would say that’s No. 1.”Jim Farley, COO, Ford Motor Co.
Does Weak Demand Indicate Trouble Ahead?
Despite new leadership on board, the fundamentals weigh heavily on the company. Not only was the latest round of financials disappointing but the outlook is still unclear. Much of the future was focused on the Chinese market. But as we’ve seen, the “China move” didn’t happen for Ford so far. Aside from the general decline in business due to things like the coronavirus, the Chinese car market, in general, is a bit soft. That’s not just for Ford but other auto companies too. Last year saw a year-over-year drop of more than 8% compared to 2018 for total auto sales.
While the goal is to shake things up and focus more on partnering with Chinese auto companies and designing cars for Chinese drivers’ preferences, its yet to be seen with regard to what a true roll-out looks like. The company has said it wants to release 30 new SUV and carr models in the country by 2022 with 33% set to be electric vehicles.
But with China seemingly a keystone to Ford’s turnaround story, the coronavirus could pose further risks for investors. Not only could this halt progress to a standstill, but the economic ramifications could also slow things down, in general later this year. And after coming off of such a terrible quarter, an even slower Q1 or, even worse, H1 2020 could push the iconic American car company into negative cash flow territory.
The Wall Street Journal even stated that 2020 could be the worst year for car manufacturers since 2009. If your memory is short, that’s when GM and Chrysler filed for bankruptcy during the thick of the financial crisis. Furthermore, data from China’s passenger car association supported this stance in showing an 80% drop in Chinese retail auto sales or February.
Will Ford Become A Penny Stock?
The standard definition of a penny stock is an equity sharer trading below $5 per share. In fact, the Securities and Exchange Commission offers a very cut and dry explanation of what penny stocks are:
Shares of Ford stock closed March 9 at $5.90 per share further extending the Q1, 2020 slide. Against the backdrop of slowing China sales, a sputtering global auto market, drastic management changes, and an $11 billion restructuring plan slated to last through the 2020s can Ford overcome or is more bleeding still in the cards?
“The company must earn back the trust of the market by delivering results … as in not missing numbers for the rest of this year and showing a real path to improving profitability significantly,” Adam Jonas, an analyst for Morgan Stanley, wrote in a March 3 research note.
While the markets may help do some heavy lifting in the short term, it may not be enough to boost the longer-term fundamental prospects until Farley can firm up meaningful results. Given the heavy load that Ford needs to tow right now, what do you think Ford stock will look like 3 months, 6 months, and a year from now? Feel free to comment below.