Should You Bet on Ford Stock Amid Strong Demand for F-150?

Ford (F) stock is up over 52 percent this year and has outperformed the S&P 500 in 2021. However, the stock has lost almost 21 percent from its 52-week highs. What’s the forecast for the stock in 2021? Will it recover and go back up?

Legacy automakers like Ford and General Motors (GM) are outperforming pure-play EV (electric vehicle) names in 2021. While both F and GM are among the top S&P 500 performers, Tesla is among the laggards. The Elon Musk-run company made it into the S&P 500 index in 2020.

Both Ford and GM stock have come off their 2021 highs. The chip shortage situation is having a negative impact on auto companies. The chip shortage is taking a toll on automakers' production and earnings. Ford raised its 2021 guidance during the earnings call for the second quarter of 2021. The company said that the chip shortage situation isn't as bad as it previously feared. However, the stock hasn’t been able to scale back its 52-week highs.

Also, there are fears that tightening by the Fed could impact the demand for cars. Finally, the general perception is that automotive companies are near their cyclical peaks in terms of earnings.

Among the 13 analysts polled by TipRanks, seven rate Ford stock as a buy, while five rate it as a hold. One analyst has a sell or equivalent rating on the stock. Ford stock has an average target price of $16.10, which is a premium of almost 24 percent over the current prices. The stock’s street-high target price is $18.

Ford has doubled down on its investments in electric vehicles and autonomous cars. These investments will likely pay off in the long term as America’s second-largest automaker tries to fend off EV companies from its turf. Ford provided some granularity about its electric vehicle plans in the second-quarter earnings release.

Ford said that its electric Mustang Mach-E SUV was the second-highest selling SUV in the U.S. It also said that it has received 120,000 preorders for the all-electric version of its F-150 pickup. Reportedly, the company plans to double the production of the F-150 Lightning model to meet the demand.

The model will be crucial for Ford since it will be pitched against Tesla’s Cybertruck. Ford is taking the competition head-on and has been working on a turnaround under the leadership of CEO Jim Farley.

Short-term volatility notwithstanding, Ford stock should recover and go back up in the medium to long term. Ford has a market capitalization of just above $50 billion, which is even below NIO. The Chinese electric vehicle maker commands a market cap of around $65 billion despite the crash from its peaks. EV bulls might not want to see a legacy automaker in the same ballpark as a pure-play EV stock.

However, this goes to show the valuation disconnect between EV stocks and legacy automakers. A year ago, markets didn't give much chance to companies like Ford and GM in the EV market. However, there has been a realization that these companies are fighting back and aren't fully out of the race.

As Ford’s EV plans unfold and it starts delivering more all-electric models, it could continue to see additional valuation multiple rerating. Currently, Ford stock trades an NTM PE ratio of 7.65x, which is near the lowest that it has traded over the last year. Even if we discount the argument of cyclical earnings peak, Ford stock looks too cheap to ignore now.