CVR Energy: Growing Through Tough Times (NYSE:CVI)


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Current Stock Price Belies Strong Positioning

CVR Energy (CVI) by our estimation has one of the best positions in the oil industry: a smaller refiner with good capital backing and a hedge against low oil prices. Investors looking for hidden value to capitalize on in the future but need some sense of security, should consider parking capital into CVI. The coronavirus pandemic’s effect on the stock market have mostly dissipated as of now, but a sector where the effects of the pandemic are still present is the Energy Industry. A quick review of the Vanguard Energy ETF confirms this, as it is still down 35% from its pre-Coronavirus high; whereas the indices like the NASDAQ have almost made a full recovery. CVR Energy at first glance appears to be just another energy company that has been devalued by the COVID-19 crisis. However, on further inspection there is much more value to be realized.

Source: Corporate Secretary.com

CVR Energy’s main revenue stream is generated from refining oil into gasoline and the stock price has declined by 46.5% since February 2020. The current valuation does not reflect both the value of the company nor future growth prospects in its business segments. The present stock price does not reflect the positive market trends for the company’s Nitrogen Fertilizer segment. It also ignores the strategic synergies gained from a potential future merger with Delek Holdings; which is a downstream energy company trading on the NYSE (DK). In addition, the long-run upswing potential of the gasoline energy industry makes CVR Energy an excellent stock for both its micro and macro growth potential.

The Fertilizer Hedge: Securing the Present

Given the current state of gas prices globally, gasoline companies are in trouble. Lower gasoline prices have crippled their earnings potential and have made it difficult for these companies to meet interest/debt payment obligations. This, in conjunction with high levels of WACC caused by higher perceived risk and a drop in share price, makes it problematic for companies to raise further equity or debt to service their obligations. CVR also has an issue with its cost of capital; currently having a WACC of 12%. But for this problem, CVR Energy has an ace up its sleeve to smooth the potential issues from a larger cost of capital: Its fertilizer business.

It is important to remember that CVR Energy, despite its name, is not only focused on refining in the energy sector. CVR Energy is a holding company operating in two market segments: A Petroleum Refining Segment and Nitrogen Fertilizer Segment. The fertilizer industry as a whole has had a rough quarter. The two giants in the industry, Nutrien (NTR) and The Mosaic Company (MOS) have both missed earnings estimates.

In this market situation it is important to note that both aforementioned companies primarily produce Potash Fertilizer, not Nitrogen fertilizer. While Potash fertilizer has seen its price decline by 2.7%, Nitrogen fertilizer has seen its price rise by 2.6%.

Fertilizer

Price 1/6/2020

(Pre-Covid)

Price 6/10/2020

(Post-Covid)

%Change Price

Nitrogen Fertilizer(UAN 32)

$272 per tonne

$279 per tonne

+2.6%

Potash Fertilizer

$375 per tonne

$365 per tonne

-2.7%

Source: Table by author using data from Market Insider

This is promising but the price side is just one part of the equation, one must also consider how the pandemic has affected the costs of production. An important cost driver of producing fertilizer is natural gas, which is used as a feedstock in the production process. Ever since the onset of the Covid pandemic the cost of natural gas has decreased by a significant 19%. The drastic cost decrease of natural gas would drive down expenses for the CVR Fertilizer Segment and accordingly, drive up its EBITDA.

Price 1/6/2020

(Pre-Covid)

Price 6/10/2020

(Post-Covid)

%Change Price

Natural Gas

$2.1532/MMbtu

$1.7449/MMbtu

-19.0%

Source: Table by author using data from Market Insider

There is a theory that there will be decreased demand for fertilizer driven by decreased demand for food. However, looking at wheat commodity prices as a case study in food demand, the price of the commodity is higher this year than at the same point in the previous year ($536.25 per tonne today vs. $507.5 per tonne a year ago). A similar trend can be seen when looking at other foodstuff prices like soybeans. Therefore, there is no significant decrease in food demand; eliminating a potential risk.

While the Nitrogen Fertilizer Segment only represents 107 million in EBITDA last year (12% of total EBITDA), due to the current favorable trends EBITDA will likely increase. This potential increase will serve as a hedge protecting the company from the current market downturns of the petroleum energy industry. We use EBITDA as a marker of true profitability, given that it reconciles income without reducing it by non-cash charges. EBITDA figures were taken from the most recent (2019) CVI annual report (audited).

Indeed, CVR is hedged against oil prices but additionally has a favorable debt structure to help weather the storm. Despite its relatively limited size it is still capable of generating enough cash to finance the company’s interest payments for 2020 and 2021; where the company also does not have any principal to repay. With this favorable debt schedule and the fertilizer business generating cash, the company will avoid the “cash crunch” issues plaguing its competitors in the refining industry.

Source: CVR Energy Annual Report 2019

The Delek Stake: Setting up the Future

Carl Icahn, one of the most prominent activist investors took a 71% supermajority stake in the company as of December 31st, 2019. The presence of Mr. Icahn alone provides a strong competitive advantage to the firm from the influx of capital from his investment or potential future investments. The capital infused from Icahn probably fueled the notable acquisition of a 14.9% stake in Delek Holdings in Q4 2019; the deal was priced at $140 million dollars. Delek Holdings is a downstream energy company that provides CVR Energy products.

There is evidence that CVR Energy is preparing to do either a merger or full acquisition of Delek Holdings. With its significant ownership in Delek (15%), CVR has spurred our speculation of a merger. When examining the Q1 2020 Earnings Call from CVR Energy there is even more evidence of a potential merger in the making.

During the call, the CEO repeatedly made references to “industry consolidation” and went so far as to state that “two public companies going into one leads to some synergies,” after analysts inquired about potential M&A. This comment is vague but it belies the tone of the conversation. Management stated consolidation is one of many options it will potentially pursue if it suits. Our team believes it suits.

In regards to capital resources, the presence of Carl Icahn who owns a supermajority of CVR shares, would be able to provide the necessary resources to conduct an M&A transaction. The potential for this was also mentioned on the conference call. Thus, all present hints point to a future merger with Delek Holdings.

This begs the question: What exactly does Delek offer CVR Energy? Most importantly, Delek Holding is also in the refining sector, with 300,000 barrels per day of production. However, the significant synergies between CVR and Delek come in the form of Delek’s Logistics and Retail Segments.

CVR Energy’s current product distribution map is mostly in the Mid-Western/Great Plains region of the United States. With some exceptions, the areas that CVR Energy’s distribution network currently services are known for low population growth. This in turn, means severely hamstrung potential demand upside in the long run. This would be a cause for concern if not for the Delek Holdings’ distribution map, showcasing how the distribution network would provide key advantages to CVR Energy. Integrating the distribution networks would grant access to the important Beaumont Port where they can ship their gasoline overseas to high growth markets in Latin America, which would expand the potential customer pool. It would also enable CVR Energy to better serve the rapidly growing Texas energy market.

CVR Distribution Map

Source: CVR Energy Annual Report 2019

Delek Holdings Distribution Map

Source: Delek Holding Annual Report 2019

Another key synergy from the potential acquisition of Delek Holdings would be the retail segment. Delek Holdings owns a chain of 252 gas stations in the burgeoning West and Central Texas markets. It is important to note that gaining a retail segment to sell CVR Energy’s products would be highly beneficial financially. This retail access would substantially increase the margins on CVR products. The retail segment would grant an additional $0.28 per liter of gasoline margin in accordance with 2019 figures from Delek Holdings.

Such synergies already contributed a strong ROI for CVR. In Q1 2020, CVR Energy recorded a $31M gain on its 140-million-dollar investment due to the acquisition synergies provided by the stake in Delek Holdings.

The Future of the Industry: Looking Forward

The Coronavirus pandemic has hit the petroleum industry very hard. The record low oil prices have led to a shock rippling through the market, causing record low gasoline prices. This trend has caused the bankruptcy of numerous companies operating in the Oil & Gas sector. This trend in the medium to long-term will lead to semi-permanent curtailed US oil production.

The Coronavirus has shut down a large portion of oil wells due to unsustainable oil price economics; some oil wells have a price per unit that can remain profitable at lower oil prices but some cannot. Oil wells in the United States vary greatly in terms of their characteristics, including but not limited to their pricing economics and profitability.

Some variation even extends to technology, it is true that there are some oil wells in the United States that can be reactivated extremely quickly via mobile devices; while others require more costly measures to reactivate.

The permanent shut down of oil wells combined with the curtailed US production would then result in higher oil prices in the future, as oil production within the US declines in conjunction with steady growth in demand. Higher oil prices indirectly benefit oil refiners and distributors, like Delek and CVR Energy; as their refineries would be able to output more inventory with the same capacity, making up for the higher costs of the product.

There is a widely held contention that disruptive companies like Tesla (TSLA) and other renewable energy companies would render gasoline obsolete. While possible it is not likely for the following reasons: First off, renewable energy companies have generally struggled to meet energy demand forecasts. There is no indication that this would change in the near future without significant government subsidy. Global governments have all incurred high levels of debt from the pandemic while trying to provide economic stimulus. Thusly, they would be dissuaded from making further investments in alternative energy projects for the near term.

As for the proliferation of electric cars, while Tesla’s growth has been astonishing it is unlikely to supplant conventional cars for the foreseeable future. CVR Energy, with its present secured, clear avenues of expansion in the future, and being in a turnaround industry makes an excellent investment for the long term.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CVI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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Wall St. falls on tough stimulus talks, mixed earnings By Reuters


© Reuters. The Wall Street sign is pictured at the New York Stock exchange (NYSE) in the Manhattan borough of New York City

By Devik Jain and Medha Singh

(Reuters) – Wall Street’s main indexes fell on Tuesday as lawmakers geared up for grueling talks over a coronavirus relief package, with investors also weighing a mixed batch of earnings reports from blue-chip companies.

Senate Republicans announced on Monday a $1 trillion aid package hammered out with the White House — four days before millions of Americans lose unemployment benefits — but the proposal sparked immediate opposition from both Democrats and some Republicans.

Hopes of more government stimulus helped Wall Street’s main indexes rise on Monday, with traders also tracking corporate America’s forecasts for a business recovery and progress in developing a COVID-19 vaccine.

Latest data showed U.S. consumer confidence ebbed in July amid a flare-up in COVID-19 infections across the country.

The U.S. Federal Reserve also said it would extend several of its lending facilities through the end of the year in a sign the economic impact of the novel coronavirus pandemic has been more prolonged than expected.

“We’re in a bit of a pause on the economic recovery while we wait for more progress on the vaccine developments and treatments,” said Jeff Buchbinder, equity strategist at LPL Financial (NASDAQ:) in the Greater Boston Area.

Dow component 3M Co (N:) dropped 5.1% as the industrial conglomerate fell short of estimates on quarterly profit and revenue, hurt by a plunge in demand across its business units.

McDonald’s Corp (N:), another Dow constituent, fell 2% after posting a bigger-than-expected drop in global same-store sales and missing profit expectations as it restaurants were shut due to the pandemic.

Pfizer Inc (N:) rose 3.1% after it raised its full-year forecast on strong demand for cancer drugs and blood thinners. Late on Monday, the drugmaker announced a pivotal global study to evaluate a COVID-19 vaccine candidate.

About 80% of the 130 S&P 500 companies that have reported, surpassed significantly lowered forecasts for profit, according to Refinitiv IBES data, better than the average of 71% companies beating profit estimates over the past four quarters.

A major focus this week will be results from members of Wall Street’s trillion-dollar club — Apple Inc (O:), Amazon.com Inc (O:), Alphabet Inc (O:) — and Facebook Inc (O:).

Technology stocks () weighed the heaviest on the benchmark S&P 500 index.

At 10:11 a.m. ET, the Dow Jones Industrial Average () was down 99.76 points, or 0.38%, at 26,485.01, the S&P 500 () was down 7.32 points, or 0.23%, at 3,232.09. The Nasdaq Composite () was down 52.37 points, or 0.50%, at 10,483.90.

The U.S. central bank is expected to reiterate its accommodative stance when it wraps up its two-day policy meeting on Wednesday afternoon.

Harley-Davidson Inc (N:) slid 7.7% after it reported an unexpected quarterly loss due to disruptions caused by the pandemic.

Declining issues outnumbered advancers for a 1.17-to-1 ratio on the NYSE and a 1.38-to-1 ratio on the Nasdaq.

The S&P index recorded 18 new 52-week highs and no new low, while the Nasdaq recorded 37 new highs and 10 new lows.





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Bearish Case For Dollar Thickens, But Bulls Are Tough To Find


A surge in virus cases and record fatalities in several US states dampened the animal spirits at the end of last week. However, few seem emotionally or materially prepared to resist the official efforts to generate favorable financial conditions to facilitate an economic recovery. Most seem to be expecting more policy support to be forthcoming.

The bearish technical case for the dollar appears to be growing. It is a little disconcerting that it seems to have become the consensus view, and the gross and net long speculative euro positioning in the futures market is near two-year highs. However, the speculative positioning in the other currency futures is not nearly as extreme. Indeed, speculators are still net short sterling, Australian dollar, and Canadian dollar.

Turns in the market often appear to have a cascading effect. The turn does not happen all at once. Given that the euro is the single most important currency in the world after the dollar, that is the real interest. The Swiss Franc can sometimes be seen as its lead indicators. The Golden Cross (50- and 200-day moving averages) crossed down for last July. The euro’s averages crossed late last month, and at the start of last week, the 50-day moving average moved below the 200-day moving for the Dollar Index. The moving average for the Swedish krona crossed in the middle of June, while the Aussie’s averages crossed on the last session in June.

Sterling is a laggard, and the 50-day moving average is about 2.5 cents below the 200-day moving average. And so is the Canadian dollar. The New Zealand dollar’s average looks set to cross early next week, and Norwegian krone may take a little while longer. We note that both the S&P 500 and the Shanghai Composite experienced the Golden Cross on the same day last week (July 9).

Also, adding to the bearish technical outlook for the dollar was the advance in gold. It has rallied now five consecutive weeks and pushed above $1,800 an ounce for the first time in nine years. Nor has the greenback drawn much succor from the fact that the Fed’s balance sheet has shrunk for four consecutive weeks, while the ECB’s balance sheets jumped by more than 11% over the same period, which stands contrary to conventional wisdom.

Dollar Index: The Dollar Index fell for the third consecutive week. The poor close warns of scope for additional near-term losses. A note of caution comes from the lower Bollinger Band, which begins the new week near 96.35. The Slow Stochastic is still trending lower, and the MACD looks poised to turn lower. The first support area is seen between 95.70 and 96.00. The year’s low was set in early March around 94.65 and that, or the 93.90 retracement area, are more important targets.

Euro: The euro set a four-week high near $1.1370 on July 9 and reversed lower to $1.1255, about 15 ticks ahead of the week’s low. However, the US market has been particularly keen to sell dollars, and they did so against ahead of the weekend and sent the euro back to $1.1325 into the close of European markets for the week. The momentum indicators are still favorable. Resistance is seen around $1.14, and June’s three-month high was about $1.1420. A break of the $1.1170 area would undermine the bullish technical case. The $1.16-$1.18 target for seems reasonable, though the Bloomberg consensus for year-end is $1.1400.

Yen: The market rejected the dollar when it poked above JHPY108 in early July, and it kept selling the dollar last week. It pushed it below JPY107 for the first time in a couple of weeks. The Slow Stochastic is moving lower, and the MACDs are gently easing. In May and June, the dollar found support a little above JPY106.00. The lower Bollinger Band is around JPY106.55.

British Pound: In the last two weeks, sterling has recovered drop to around $1.2250 to approach the 200-day moving average near $1.2700. The upper Bollinger Band is found near there too (~$1.2675). The momentum indicators allow for additional near-term gains. Last month’s high was almost $1.2815. However, that trendline that connects the March (~$1.32) and June highs starts next week a cent lower. Support may be found in the $1.2500-$1.2520 area.

Canadian Dollar: The Loonie was the underperformer last week. It was the only major currency that fell against the US dollar (~-0.3%). The US dollar remains in a range against the Canadian dollar of roughly CAD1.3500 to CAD1.3700. The range has been intact for a month, though it did fray the lower end of the range last week (~CAD1.3490 low). The sideways movement has muted the momentum indicators. In a weak US dollar environment, the Canadian dollar often lags behind the other majors. The greenback is testing a downtrend line that connects the March, May, and late-June highs. It appears to come in a little below CAD1.3590 at the start of the new week.

Australian Dollar: After several tests, the Aussie poked briefly above $0.7000 for the first time in a month, but there were no follow-through gains, and it returned to $0.6925, the lower end of the week’s range ahead of the weekend. The MACD has flatlined, while the Slow Stochastic appears to be curling down. Before the weekend, the Aussie closed below its five-day moving average (~$0.6960) for the first time this month. Key support is not seen until the $6780-$0.6800 area, but a break of $0.6900 would disappoint some bulls.

Mexican Peso: The dollar has fallen in eight of the past ten sessions against the Mexican peso, over which time it shed about 2.2%. The greenback was turned away from MXN22.90 early last week and posted an outside down day ahead of the weekend (trading on both sides of the previous day’s range and then settling below that low). A trendline drawn off the February low (~MXN18.56), the June low (~MXN21.46), and the last week’s low (~MXN22.15) starts the new week near MXN22.35.

Chinese Yuan: The dollar’s seven-day slide that took it below CNY7.0 for the first time since March, stalled ahead of the weekend. It managed to settle just above that once key level, which is essentially the middle of this year’s range. Some link the yuan’s rise to underweight foreign investors having to chase the stock market higher. Even with the nearly 2% pullback at the end of last week, the Shanghai Composite netted a 7.3% gain, and the Shenzhen Composite rose 10.25%. The yuan outperformed most emerging market currencies and the dollar-bloc currencies, sterling, and the Norwegian krone. Chinese officials have succeeded in keeping the yuan fairly steady against the US dollar.

Gold: The buying enthusiasm faded in the middle of last week as the yellow metal reached $1,818. It consolidated within Wednesday’s trading range during the last two sessions. The momentum indicators look poised to turn lower, which has made us cautious. A month-long trendline begins next week near $1,790, and a break could signal a setback into the $1,750-$1,765 area. Gold has rallied from around $1,670 in early June, and some consolidation should not surprise.

Oil: The September WTI contract has advanced in eight of the past ten weeks, during which time it has risen from below $30 to almost $42. However, the contract slipped to nine-day lows (< $38.80) ahead of the weekend, before staging a smart rebound and closed near new session highs of almost $41 barrel. Neither the MACD nor Slow Stochastic is generating a strong signal. The June high near $41.75 is the next obvious target, which is also about the middle of this year's range, and there is the gap from March that extends toward $42.50. Although violated intraday, the trendline off the late May low (~$32.20), mid-June low (~$35.00), and late June low (~$37.30) may still be valid and begin next week near $39.50.

US Rates: Fears that the new outbreaks will have a material impact on the economy encouraged lower yields and appeared to help ensure a strong reception to the US 30-year bond auction. Most foreign investors prefer shorter maturities, but indirect bidders showed up in force even with yields at new two-month lows. The US 10-year yield fell to almost 56 bp at the end of last week, its lowest level since mid-May. The same story holds for the two-year yield. It approached 13 bp for the first time since mid-May. The record-low was just above 10 bp, but the five-year note yield did register a new record low of almost 25 bp ahead of the weekend, before bouncing back to nearly 30 bp. A near-term low in rates may have been seen, but the upside continues to appear limited.

S&P 500: The S&P 500 spent the week alternating between gains and losses to net about a 1.5% increase that keeps it knocking on the 3,200-cap ahead of the three-month-plus high set in early June near 3,233. The lack of transparency with Q2 earnings season getting underway in earnest has been cited by many observers as a challenge, but that assumes earnings matter right now. The market does not appear to be trading with much of a focus on the April-June period. Admittedly, the advance of the S&P 500 seems narrow. Nevertheless, the price action remains constructive. Many keep looking for European stocks to outperform the US, but if it is going to happen, it has not begun yet. In the past two weeks, the S&P 500 has gained about 5.70%, while the Dow Jones Stoxx 600 is up 2%.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.





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Ford: Built Tough Against Near-Term Headwinds (NYSE:F)


Like most car companies, Ford (NYSE:F) has been having a tough time during the coronavirus pandemic. The lockdown and subsequent stay-at-home orders have dampened consumer confidence and halted automobile sales. However, the company is an American icon with a fantastic product and a loyal following. Despite the current short-term difficulty, I believe the company still has a solid, long-term future.

The company is facing some serious short-term headwinds because of the capital and fixed-cost-intensive nature of the business. Ford reported Q1 2020 net loss of $2.0 billion. Even more concerning is this net loss corresponded with a first-quarter free cash flow of negative $2.2 billion. In order to raise cash, the company tapped around $15 billion from its credit lines, issued an additional $8 billion in debt, and suspended its dividend. The company ended Q1 with $35 billion in cash.

The preliminary results for Q2 do not look promising either as total vehicle sales were down 33.3%. This is really bad news for the company as, like all automobile manufacturers, Ford’s margins are incredibly tight. Despite having $155.9 billion in sales, the company only has a 13.6% gross margin. Given the high fixed costs, a small decrease in sales would lead to a large decrease in the bottom line.

A possible silver lining though is that retail sales were only down 14.3% and retail sales for trucks were practically flat. The bulk of the loss can be attributed to the lack of industrial fleet sales. This is not surprising given that companies were conserving cash due to the pandemic and a lot of these purchases may have been pushed back or canceled. Basically this means that the Q2 2020 results will most likely look much worse than Q1 2020.

Investor presentation

Investor presentation

Ford’s future prospects look a lot better

Despite the present challenges, Ford is prepared to fire on all cylinders through 2020-2022. First and foremost, a new Ford Bronco is set to launch sometime in 2021 (with the unveiling in a few days’ time). The Bronco is a classic brand last seen in 1996. Ford is intending to tap on the nostalgia for the brand by highlighting its classic design such as its iconic horizontal grill. Similar to the Jeep Wrangler, an SUV Ford dedicated to taking on, the Bronco is an off-road-focused SUV. It will be mid-sized 4×4 and be a body-on-frame designed for rough roads. The Bronco will be offered in two- and four-door configurations along with a smaller variant called Bronco Sport.

2021 Ford Bronco: What We Know So Far

2021 Ford Bronco: What We Know So Far

Ford has been very clever in building hype for the reveal of the Bronco by partnering with Disney to get the message across all of its platforms. In fact, the Ford Bronco is among the most anticipated cars in 2020 according to Google search trends. Hype for the Bronco has been building up since this study was done and is close to the highest it’s been in anticipation of the launch. The company seems to have learned its lesson from the failed launch of the Explorer, so I do not expect any issues from this launch.

These Are The Most Googled Upcoming Cars Per State In America | Carscoops

Google Trends

Brian Moody, executive editor at Autotrader.com, said, “Jeep has been capitalizing on their heritage for decades, and not in name only. Jeep has proven that a genuinely capable adventure/utility vehicle with a nod to the past is what many people want. And that’s what the Bronco promises, if they can deliver an authentic product and, more importantly, communicate that authenticity laced with nostalgia, it will be a winner.”

Ford declares war with all-new Bronco as Jeep Wrangler demand spikes

Apart from the upcoming Bronco, Ford has hedged its future in the electric vehicle market. Threatened by upstarts like Tesla (NASDAQ:TSLA) and its Cybertruck, Ford has dedicated itself to building its own electric vehicle using its ever-popular F-150 as the base. The F-150 is the best-selling vehicle in America, and it’s quite clever that Ford used this as a way to introduce its entire EV line-up. This means that for the average truck driver, the design and feel of the electric vehicle version F-150 is far more comfortable than the somewhat weird-looking Cybertruck. Ford is targeting to have this car out by 2022.

Pick-up trucks are the company’s differentiator and its bread and butter. Ford and Lincoln both ranked in the top 5 in J.D. Power 2019 US Initial Quality. Ford pick-up trucks have a brand history built over the years when it comes to power and reliability. Given Tesla’s Model Y production quality issues, I do not view the company as a threat to Ford’s long-term dominance of the market.

The other potential threat to Ford from the EV side is the upcoming Rivian truck which is set to launch sometime in late 2020. However, Ford has hedged being displaced by a possible disruptor by investing $500 million into the car manufacturing start-up. Ford’s Lincoln brand continues to closely work with Rivian using its electric vehicle platform. This partnership allows Ford to have a sort of “hedge” should Rivian become the dominant EV technology.

Watch Ford F-150 all-electric pickup prototype tow over 1 million lbs of train carts – Electrek

Valuation

I feel that Ford is undervalued as the company’s price to book value is close to the lowest it’s been in five years. The current price to book ratio is 0.83x. Automobile manufacturing is a mature industry that is incredibly capital intensive. This deters new entrants from entering the industry and ensuring the incumbents’ dominance in the long term. While the stock has recovered from the lows quite a bit, it has not yet fully recovered from its price of $9.16 at the beginning of the year.

ChartData by YCharts
ChartData by YCharts

Among the big three car manufacturers, Ford also consistently has the highest gross margins. In a capital-intensive industry, having the highest gross profit margin gives you a substantial edge over your competition. However, there is room for improvement as Asian competitors like Toyota (NYSE:TM) and Honda (NYSE:HMC) have gross margins above 15%. Ford’s margin has been declining over the past five years. I feel confident that the company can improve its margins as it is undergoing an $11 billion restructuring plan in order to bring costs down and be more efficient. With the various possible tailwinds the company could have in the future, I believe the company is oversold and a reversion to a price to book value of 1 is probable. The company has a book value per share of $7.46 (which is my near-term target price as well). This implies a 25% upside from the current price levels.

ChartData by YCharts

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in F over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Caveat emptor! (Buyer beware.) Please do your own proper due diligence on any stock directly or indirectly mentioned in this article. You probably should seek advice from a broker or financial adviser before making any investment decisions. I don’t know you or your specific circumstances, therefore, your tolerance and suitability to take risk may differ. This article should be considered general information, and not relied on as a formal investment recommendation.





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How to save money in tough times: 6 do’s and don’ts


Probably the last thing you want to think about during a crisis is working on healthy financial habits like saving money. But if you’re able to save, you can make your eventual recovery easier.

“Every time you put some [money] away, you’re looking out for your future self,” says Saundra Davis, founder and executive director at Sage Financial Solutions, a San Francisco Bay Area-based nonprofit that offers financial coach training and services to people across the wealth spectrum.

Whether or not your financial situation has changed since the start of 2020, you may benefit from these saving strategies now or down the road.

Do: Reduce costs, including bills if needed

Common advice to save money is to cut unnecessary costs. During a continuing crisis such as a pandemic, you might need to redefine what is “unnecessary.”

Be sure to read: Making sense of the new July 15 deadline for filing — and paying — your taxes

Start with the cost of bare essentials to operate your household — rent or mortgage, utilities, food — and when you factor bills in, don’t treat them all the same. For example, paying your credit card bill in full every month is normally the best tactic, but in hard times, it’s OK not to follow this rule and just pay the minimum. For loan payments, see if your creditor can offer relief.

“Don’t have your lender deciding what you can pay,” Davis says. “Sketch out your own budget.” This might mean working with your lender to reduce payments or suspend them temporarily.

Do: Adjust your savings goals

Having a dollar amount to save up to is generally helpful. An emergency fund, for example, is a standard goal that involves building up three to six months’ worth of living expenses. But during an emergency, consider resetting expectations.

Also see: Here’s how many Americans are able to save their stimulus checks

“If your income changes, you aren’t beholden to saving a fixed amount,” says LaKhaun McKinley, certified financial planner and owner of the firm MNM Vested in Katy, Texas.

The way you save might need to be tweaked, too. If you use automatic transfers from checking to savings accounts, see if that amount is still doable for you. If not, reduce the amount. Or, as a last resort, cancel the transfers for now and make one-off transfers when possible.

When saving money, “the habit is more important than the amount,” Davis says.

Do: Find a high savings rate

Opening a high-yield savings account at an online bank is a good strategy, regardless of the economic environment. The national average rate is 0.06%, but some online savings accounts are currently offering over 1% annual percentage yield. The account-opening process can take a few minutes.

Opening a high-yield account “can be such a simple way to earn more,” says Kelley Long. She’s a Chicago-based certified public accountant, financial planner and member of the American Institute of CPAs’ Consumer Financial Education Advocates.

Do: Get help from your community to save costs

If you’re experiencing financial hardship, call 2-1-1 or visit the website 211.org. This is a free way to learn about resources in your community, including food banks, meal services for seniors and students, shelters, mental health services and more. If you’ve never asked for help like this before, it may feel uncomfortable. But accepting meals or other support can be an important lifeline as well as help you save money.

Also see: How bad is it if I withdraw from my 401(k) during the pandemic?

“We want to stay aware of what’s available in our community and give ourselves the emotional room to do things we’ve never done before,” Davis says.

Some relief is nationwide, including postponed federal student loan payments and coronavirus-specific unemployment programs, but your local community might have additional resources.

Don’t: Dip into savings without a plan

If you have an emergency fund and you need it now, use it. But estimate the amount you need before withdrawing, and keep tabs on how you spend it.

You’ll eventually need to save up again, and you want to make that process manageable. It might help to settle on a minimum amount you need to keep in a savings account to feel OK.

“Everyone has a different feeling [for] what would give them that security,” Long says. For some people, for example, “seeing a comma in your account can have a formative effect on your feeling of financial security.”

Don’t: Withdraw from savings too often

Keep an eye on the frequency with which you turn to your savings account. Banks can charge an excessive savings withdrawal fee if you go over six a month. During COVID-19, the Federal Reserve has paused this rule, but it’s up to each bank to choose whether to charge the fee. Watch out for other fees, too, such as for overdrawing if you dip past your checking account balance.

See: The best side gigs you can do from home

If you’re running into trouble with fees, examine why you needed more savings than expected.

“We might be overaggressive in savings goals. That’s usually due to failing to account for certain expenses in our spending plan,” Long says.

“In a crisis,” she adds, “we need to remember that there are times that we can’t be long-term in our thinking.”

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