Ford Motor Company (F): Best Undervalued Stock to Buy According to Reddit?

We recently compiled a list of the 10 Best Undervalued Stocks to Buy According to Reddit. In this article, we are going to take a look at where Ford Motor Company (NYSE:F) stands against the other undervalued stocks. If interested, read our recent piece on the 10 Most Undervalued Stocks to Buy for Under $20.

Retail investors often discuss their investments on platforms such as Reddit and have become a major market force in recent years. According to a report, inflows from retail investors in the stock market between 2014 and 2019 averaged around $200 million, with a peak of $730 million in 2015. The figure spiked to $1.2 billion in 2020, with daily flows reaching $1.48 billion in 2021. Over the next couple of years, the value of inflows hovered between $1-1.4 billion per day, driven by commission-free online trading platforms and stimulus payments from the government. The surge in investor inflows is also owed to the pandemic, during which low interest rates and bond purchases by the Federal Reserve pumped heavy money into the American financial system.

The year 2024 has already been a healthy year for the American stock market, driven by a strong performance by technology stocks. Tom Lee, the co-founder and head of research at Fundstrat Global Advisors, is bullish on the ongoing fiscal year and anticipates the market to triple in size by the end of the decade.

The two major factors driving Lee's bullish projection were the global labor shortage and a surge in the population of millennials. He mentions how millennials are the largest generation shaping the economy and are set to inherit big as we approach the generational wealth transfer of at least $80 trillion. According to a report, by 2030, millennials will have five times more wealth compared to what they have today. Moreover, the past two incidents of global labor shortage led to major spikes in technology stocks, and Lee is expecting the same again this time. However, he also warns of risks that could undermine his positive outlook, including AI backfiring, global recession, and geopolitical instability.

This uncertainty about the stock market, coupled with stocks' volatility, makes it difficult for investors to ascertain the true value of the stock they want to invest in. American billionaire hedge fund manager, Bill Ackman, in May this year, discussed the current state of value investors and acknowledged that predicting the durability of a stock is far harder than building a financial model in the world of investment. Responding to a question about the use of AI to analyze stock investments and financial markets, Ackman stated that AI platforms might help in decision-making over the short run, but there is no guarantee that they would continue working over the long run.

Value investors purchase stocks they believe have a high value but their share prices do not reflect the stock's actual worth, aiming to benefit when the market corrects itself. If the correct stocks are picked, it can lead to hefty returns for the investors through share price performance. One way of picking out the right stocks is noticing what the hedge funds are doing. Insider Monkey regularly covers top hedge fund stocks across industries for each quarter, and you can keep up with the information by following our website and subscribing to our newsletter. One such example is the 10 Best Aerospace and Defense Stocks to Buy Now.

Methodology

We went through several threads on Reddit to identify the most talked about top undervalued stocks according to investors on the platform. After gathering a list of companies, we went through a stock screener to verify that these stocks were undervalued. Then we sorted and listed the stocks in ascending order of how frequently they were mentioned on Reddit for being undervalued. In cases where two or more stocks were level on the metric, we outranked one over the other based on hedge fund sentiment about the stocks in question. Insider Monkey's database of 920 hedge funds for Q1 2024 was used for that purpose.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A Ford truck roaring down a highway, with powerful headlights blazing its way.

Ford Motor Company (NYSE:F)

Investors on Reddit that consider the stock undervalued: 2

Ford Motor Company (NYSE:F) is an American automobile company founded in 1903. It sells commercial vehicles under the Ford brand, and luxury cars under its Lincoln brand. The company has had inconsistent returns over the last few years — 136% in 2021, followed by a significant drop of -44% in 2022 largely due to high losses in its EV business unit, labor crisis, and inflated warranty costs, before rising again to 5% in 2023. As a result, over the last couple of years, the stock lost its share value by 16%.

However, the company is staging a recovery this year, with the share price having grown 15% year-to-date, driven by strong sales of its trucks, especially the F-150 series. The EV market has also slowed down. Previously, the company was under fire for its slow pace of transition, but now, with the market cooling down a little, Ford Motor Company (NYSE:F) can afford time to focus more on its gas-based vehicles, while also moderately working on its EV developments.

For the first quarter of 2024, Ford Motor Company (NYSE:F) reported an EPS of $0.49 per share, beating analysts’ expectations of $0.42. Owing to the improved results in the quarter, the company readjusted its expectation of free cash flow for the year to between $6.5-7.5 billion, from the earlier outlook of $6-$7 billion.

Despite the stock showing signs of improvement, with the share price growing 20% over the past month, investors on Reddit believe that Ford Motor Company (NYSE:F) is trading at a lower value compared to the industry. They expect its share price to increase further over the coming months, especially due to the spike in sales of its F-150 trucks. There is also consensus among analysts about the stock’s Buy rating, with an average price target of $14, an upside of 1.1% from its current level. Moreover, according to Insider Monkey, 41 hedge funds were bullish about the company’s prospects as of Q1 2024, reiterating the opinions of investors on Reddit that it is one of the best undervalued stocks to buy.

In contrast, there are also bear cases against the stock. The first stems from the macroeconomic situation in the United States. If the economy goes into recession, the automobile industry is likely to experience selling pressure. The second reason is the United Auto Workers (UAW) strike of 2023, which ended at the expense of a massive price tag to be borne by automakers. Ford Motor Company (NYSE:F) is expecting $8.8 billion in additional costs through mid-2028, with the incremental cost per vehicle rising to $900 by 2028 under the new contract, which is likely to dent the company's EBITDA margins.

Overall F ranks 10th on our list of the best undervalued stocks to buy according to Reddit. You can visit 10 Best Undervalued Stocks to Buy According to Reddit to see the other undervalued stocks that are on hedge funds’ radar. While we acknowledge the potential of F as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than F but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.