When it comes to automotive stocks, Ford (NYSE:F) is the company that confounds me the most. In the last year, I’ve written several articles about Ford stock, both negative and positive. I genuinely don’t know if it’s a $5 stock or a $20 stock.
Usually, I’m pretty decisive about whether I like a stock or not.
Take Tesla (NASDAQ:TSLA) for example. Warts and all, I’m a big believer in Elon Musk and the company’s products. As I’ve said in the past, Musk is dragging the rest of the car companies kicking and screaming into the 21st century.
Ditto for Ferrari (NYSE:RACE).
I was skeptical about whether Ferrari’s stock would keep rising in the second half of 2017, after it soared 52% in the first six months of the calendar year. However, it did climb in the second half of the year as well, delivering a total return of 82% in 2017.
Don’t mistake that skepticism for negativity. I was confident that any decision the company’s late CEO, Sergio Marchionne, made regarding it or any other part of Fiat Chrysler (NYSE:FCAU) would be the right one.
That’s why I recommended RACE stock in February 2018, when it was trading around $130.
“How many car companies have a 30% net margin? By comparison, Ford Motor Company’s is around 8%,” I wrote. “Given the financial strength of Ferrari, not to mention its hold on the luxury sports car market, it’s easy to see why its stock is up 136% since going public in October 2015.”
So, today, investors can invest in Ford stock, a value play if there ever was one, or Ferrari, arguably one of the best stories in an automotive industry that’s struggling for direction.
Value vs. growth. Ford stock vs. Ferrari stock.
Although they both look compelling — for entirely different reasons — ultimately, only the most patient investors should choose Ford Motors stock over Ferrari. Here’s why.
Ford Stock: The Value Play
In October, I suggested that investors avoid F stock under $10. despite its apparent value, for two reasons.
First, I believe CEO Jim Hackett is not the person for the job, an issue that I first raised in June 2017. Since I first expressed that view, Ford stock is down 26%. Secondly, Ford relies far too heavily on the F-150, as few of its other vehicles generate meaningful revenue. And if Ford can’t get the F-Series electrified soon, other truck makers will take business from it, hurting Ford Motors stock.
That said, I changed my position in early January, calling Ford stock the best U.S. equity trading under $10. With Ford stock trading for less than three times its cash flow, you’re not going to find many other companies with $257 billion in total assets with such low valuations. For example, Ferrari’s cash-flow multiple is ten times greater than that of Ford stock.
There’s no question that F stock is a value play, but it’s only suitable for the most patient of investors who aren’t relying on it for their retirements.
Ferrari Stock: The Growth Play
Sergio Marchionne, in my estimation, was one of the truly brilliant CEOs of his time. He took risks; knowing there were too many car companies selling too many models, he pushed for consolidation, and most importantly, he revived not one, but two major car companies.
He had high expectations for both Fiat Chrysler and Ferrari, and most of the time those expectations were met. Louis Camilleri, the man chosen to step into Marchionne’s giant shoes, has high hopes for Ferrari, although his goals are slightly less ambitious in nature than those of Marchionne were.
Camilleri expects Ferrari to generate at least $1.8 billion in EBITDA by the end of fiscal 2022. Its 2018 EBITDA was $1.3 billion . Marchionne wanted Ferrari to launch an SUV by 2020; Camilleri pushed that goal back to 2022. However, Ferrari expects to launch 15 new models over the next four years, ensuring that sports-car enthusiasts have plenty of Ferraris from which to choose.
The Bottom Line on Ferrari Stock and Ford Stock
Despite losing such a talented executive, Ferrari will be just fine in the hands of Camilleri. That’s because Marchionne understood that it takes an entire team to deliver the goods.
As for Ford, I’d be a lot more comfortable recommending its stock below $10 if Marchionne were alive and well, and running the company.
If you’re thinking of investing $10,000, I’d put $7,500 into Ferrari stock and the rest into Ford Motors stock.
Value + Growth = Bigger Profits.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.