With very high liabilities ($223 billion), tariffs and rising interest rates, Ford faces a tough road to keep out of junk bond territory. Moody’s downgraded Ford bonds to the lowest investment grade rung, with a negative outlook, on August 29, 2018. At the time the analysts wrote, “The ratings could be downgraded absent clear progress in pursuing the Fitness initiatives by early to mid-2019, with evidence that the company is on a strong trajectory for recovery.” As interest rates rise, bond investors have begun trading Ford like it is already in junk bond territory, according to a report from Bloomberg today. Ford is America’s bestselling brand for trucks, SUVs and vans.
Since bonds are on the safe side of your nest egg, this is something that everyone should pay attention to. More than half of investment grade corporations are at the lowest rung above junk bond status. Many bond funds allow 20% or more junk bonds in their bond funds, making these products far riskier than most investors realize.
Ford earnings are predicted to finish up 2018 21-30% lower than last year. Ford Motor Company has the highest debt to equity ratio in the U.S. auto manufacturing industry. (Yes, Ford’s debt and liabilities are eight times higher than Tesla’s.) Nov. 14, 2018 will be a big day for Ford, when they reveal their “operational efficiency improvements.” The presentation will include “complexity management, capital equipment reuse and yield management.”
Ford stock investors should be aware that one of the ways Ford can avoid a downgrade is by cutting its dividend. The company promised in the 3rd quarter earnings call and in its fixed income presentation to keep the regular dividend “throughout the cycle” (whatever that means). Ford did not respond to my inquiry to define this phrase. More details on the regular and special Ford dividends should be revealed on Nov. 14, 2018.
Ford Motor Company’s revenue was up 3.3% in the 3rd quarter of 2018; Tesla’s revenues more than doubled in the same period (from $2.98 billion a year to $6.8 billion). Learn more about what’s really happening at Ford and Tesla in my blogs from September 20, 2018.
Investors Ask Natalie Pace: Should I Invest in Ford?
The Tesla 3 is the Number 1 Selling Luxury Sedan
In other news, yesterday Ford purchased the e-scooter company, Spin. Learn more here:
Wall Street values Tesla ($60 billion) higher than GM ($50 billion) and Ford ($37 billion). All three U.S. carmakers combined don’t equal the value of Toyota Motors ($168 billion).
Moody’s indicated on September 18, 2018 that the auto manufacturing industry should keep their current bond ratings into 2019. However, with gasoline prices up near $3.00/gallon (nationwide average), over $1.88/gallon in early 2016, and mounting “environmental policy pressures” (worldwide), consumer preferences are likely to shift, technological disruptions will continue and pressure will increase on profit margins and cash flow. This is the cocktail that weakened General Motors’ capital position ten years ago, when Toyota launched the Prius and consumers opted for fuel efficient vehicles. If Ford relies too much on gas guzzlers to fuel it through these challenges, that could be a losing bet.
All Americans want a strong economy, jobs and a healthy auto manufacturing industry. As investors, however, it’s imperative to know the fiscal health of your holdings and to make sure that you are not over-exposed to industries and companies that are experiencing fiscal health challenges. Tariffs, higher costs for steel and rising interest rates are expected to negatively impact all carmakers in 2019.
Other Blogs of Interest
6 Risky Investments. 12 Red Flags. 1 Easy Way to Know Whom to Trust With Your Money.
Whom Can You Trust? Trust Results.
October Wipes Out 2018 Gains.
Will There Be a Santa Rally in 2018?
The Dow Dropped 832 Points. What Happened?
Bonds are In Trouble. Learn 5 Ways to Protect Yourself.
Interest Rates Projected to Double by 2020.
5 Warning Signs of a Recession.
How a Strong GDP Report Can Go Wrong.
Should I Invest in Ford and General Electric?
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.
ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Gratitude Game, The ABCs of Money and Put Your Money Where Your Heart Is. She blogs on Huffington Post and Medium, and is a frequent guest contributor to national news shows and magazines. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.