Better Buy in a Bear Market: Ford vs. Lucid Stock

Last year was generally a challenging year for auto stocks. Ford Motor Company (F -2.05%) And Lucid (LCID 1.37%) It stands out among the notable losers in the industry across the stretch, with their stock prices down about 50% and 81%, respectively. While the specter of continued or intensifying economic pressures in 2023 could mean the auto industry is on course for another challenging year, the big sell-off also opens the door for long-term investors to solid returns – if they back the right companies.

Would it be better to put your money behind the auto giant or the innovative electric vehicle operator? Two Motley Fool shareholders have different opinions on whether Ford stock or Lucid stock will deliver higher returns for investors.

The Ford F-150 Lightning needs no introduction, as it recently won Motor Trend's Truck of the Year award, beating out many other popular pickup trucks.  It's no wonder the F-150 remains America's best-selling vehicle for the 40th year in a row and the industry's best-selling truck for the 46th year in a row in 2022. As a sign of insatiable consumer demand, F has added its third convertible to the Michigan plant to expand its annual production of F -150 Lightning to 150,000 units by the third quarter of 2013. These numbers are really impressive, as they indicate a significant uptick of 272.7% from their initial plans of 55,000 units by 2023. In addition, we must highlight the huge upsides Prices are down 40% to date, from the first introductory price of $40.  K to $56,000 by December 2022, due to rising inflationary pressure across labor and material costs.  We think there's a bit of a moderation risk for the automaker now, given that the F-150 Lightning's MSRP is still well below the $80K cut-off point to qualify for the $7.5K tax credits.  On the other hand, the consumer index for new car sales was remarkably moderate

Image source: Getty Images.

Lucid has no shortage of consumer demand

Parkiv Tatevosian: Lucid is driving the strong secular tailwind driving the rapid adoption of electric vehicles. Governments around the world are encouraging this trend by incentivizing consumers to buy electric vehicles. But potential Lucid customers don’t seem to need much encouragement. The company boasts of more than 34,000 reservations for its luxury cars. That’s more than $3.2 billion in potential revenue.

The big challenge for Lucid is to ramp up production efficiently enough to meet strong demand for it. In its most recent reported quarter, Q3, Lucid produced 2,282 vehicles, more than triple the production in the previous quarter. To help it achieve its goals, the company has $3.85 billion in cash on hand. And to make the case for Lucid Motors stock even more convincing, the Saudi government is not only a major investor in the company, but has also agreed to buy at least 50,000 of its cars over the next decade, with deliveries starting this year.

LCID PS ratio chart

LCID PS system data by YCharts.

Still, investors need to remember that Lucid is a high-risk stock. Many companies with deep pockets are aggressively expanding into electric vehicles, and there’s no telling which ones will make it out of the pack. Furthermore it, Lucid shares aren’t cheap, trading at a price-to-sales ratio of 36. This does not eliminate the potential for Lucid to become one of the major players in the electric vehicle market. If that happens, the return for its shareholders could be huge.

Ford is an undervalued makeover

Keith Noonan: There’s no doubt that 2022 has been a tough year for Ford, and the market isn’t excited about the road ahead for the company. Its valuation was hit by a series of auto recalls in 2022, and the specter of a difficult operating background this year has dampened investor sentiment regarding the automaker. But even with the challenges, it wasn’t all bad news.

Ford actually increased its industrial market share by 0.7% last year as it broadened and broadened its SUV lineup. Electric car sales twice the overall category rate. With its shares now trading at just 7.2 times expected future earnings, Ford is an industry leader that trades at value prices. The auto giant also pays a dividend of about 4.8%.

While the total number of vehicles Ford sold annually fell nearly 2.6% to 1.86 million in 2022, it actually ended the year on a high. Vehicles sold in December were up nearly 3.2% year-over-year, and truck sales were up 10.9% year-over-year.

Although the company is facing some challenges, Ford has also continued to enjoy strong demand for its F-150 line of trucks and will likely remain a leader in the pickup segment. Its F-150 Lightning, in particular, seems poised to be a major performance driver. EV won MotorTrend’s Truck of the Year award, and demand was strong enough that Ford took steps to greatly increase its production capacity.

While Lucid has the potential for more robust sales growth, I think Ford generally presents the most attractive valuation picture given the potential for a recession in 2023.

What is the right stock for your portfolio?

Ford and Lucid are two very different companies with very different valuation profiles and growth prospects. Lucid is just beginning to ramp up vehicle production and deliveries. It likely has a broad runway for future growth, but it also faces some noteworthy risks and trades at a valuation that relies heavily on growth.

Meanwhile, Ford stands as an established auto giant that has delivered generally disappointing performances of late. But it remains a steadfast stalwart in the industry and trades at levels that allow room for significant appreciation.

For investors interested in the high-risk, high-reward adventures of an electric vehicle with the opportunity for long-term returns, Lucid stock is clearly the best fit for this profile. On the other hand, investors looking for undervalued redemption plays will likely find more to like about Ford stock.

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