When a stock’s price falls, its dividend yield rises – and Ford Motor Co.’s (NYSE: F) yield was recently pushed up near 7 percent. With its price-to-earnings ratio in the single digits, too, that makes it an interesting opportunity.
The stock is down, in part, because of the slowing of the North American light-vehicle market and sharp sales declines in China and Europe. A possible trade war could make production more expensive at any given moment, too. Meanwhile, though revenue has been rising in recent years, profit margin hasn’t kept pace.
Ford is working on improving manufacturing efficiency and focusing on higher-margin products. It plans to introduce more than 50 new products in China by 2025, including eight all-new SUVs, which should boost sales. In Europe, it plans to make product cuts, is considering exiting Russia operations and will revamp its vehicle lineup to reduce costs. Its new products are being designed to maximize profitability, with many shared parts under the skin, and streamlined options lists intended to simplify manufacturing.
Investors with an appetite for risk and a long-term horizon who buy into Detroit’s second-largest automaker should enjoy solid returns if it can turn its business around. And while they wait, they’ll receive fat dividends. (The Motley Fool has recommended Ford.)
Ask the Fool
Q: Can you explain the financial term “liquidity”? – V.R., Biloxi, Mississippi
A: For individuals, liquidity refers to how easily we can get our hands on needed money. Cash is very liquid, whereas real estate, which can take weeks to sell, is not.
For companies, liquidity often refers to cash and assets that can be quickly converted into cash (such as money market funds and stock and bond investments), minus short-term debt. Companies with high liquidity can be less risky, but they might also grow more slowly, as they’re not deploying assets that could be used to grow the business.
Liquidity is also used to describe a stock’s ability to handle lots of buy-and-sell orders with minimal volatility. If major investors such as mutual fund managers want to buy a million shares of a stock, they don’t want their purchases to start driving up the price before they finish buying.
For example, imagine Buzzy’s Broccoli Beer (ticker: BRRRP) has 10 million shares outstanding at $9 per share. That means there’s only $90 million worth of shares that investors in the market can buy or sell. If much of that is owned by company insiders, then even fewer shares are available. Compared to many companies that trade more than $1 billion worth of shares per day, it’s small, probably volatile and definitely illiquid.
Q: Where can I look up the rate of home-value appreciation in a region? – K.W., Greensburg, Pennsylvania
A: At Zillow.com/home-values, you can look up home-price growth rates for the nation, each state and many metropolitan regions. Realtor.com is another source, offering overviews of many major counties and cities. You can get lots of information from good real estate agents, too.
My dumbest investment
A few years ago, a TV pundit had the CEO of Cliffs Natural Resources on his show. Not only did the CEO seem to have a great strategy for the future, but the pundit recommended buying the stock, too. It seemed like a solid investment to me, so I bought 100 shares at $66 per share. The stock started bleeding out, though, and I bought more shares at $35 and more at $17. Here’s hoping that iron ore prices start going back up. – S., online
The Fool responds: Unfortunately, even though you wrote to us several years ago, your shares (if you’re still holding them) are still underwater. The good news is that after falling to almost $1 per share in early 2016, the shares have been rising – recently trading at nearly $11 apiece.
What’s going on? Well, Cliffs (now named Cleveland-Cliffs) was mainly in the coal and iron-ore businesses, which faced major challenges: The country was moving away from fossil fuels and depending more on cheap imported steel.
The company, which is America’s largest and oldest iron-ore miner, sold its coal operations and has been posting profits in recent years. That’s good, but it doesn’t necessarily mean you should hang on to your shares. Only do so if you’re fairly convinced the company’s future is bright. Otherwise, look for companies that are healthy and growing and that seem to be bargains.
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