Stock markets took a tumble earlier this year, giving up much of their gains from November, when removal of uncertainty as to the next resident of the White House helped allow stocks to rise. From mid-December through mid-January, the S&P 500 lost about 4% of its value, before climbing right back again to just about where they were before the decline!
Valued just north of $600 a share right now, the SPDR S&P 500 ETF (NYSEMKT: SPY | SPY Price Prediction) is once again trading at all-time highs. If you have a bit of cash laying, and are wondering whether now might be a good time to invests it, well, three straight weeks of little movement in the S&P might suggest now actually is a safe time to invest.
But invest in what?
Say you’ve got $75,000 to invest, and you’re deciding between two automotive stocks, Ford (NYSE: F) and Tesla (Nasdaq: TSLA) for example. How do you decide between them?
As luck would have it, both these automotive stocks recently reported full-year 2024 earnings, so investing right now means you’re investing with about the freshest financial information you’re going to have access to for the next three months, and covering a full year of data to boot. So here’s what we know.
Ford first
Ford’s sales didn’t grow much in 2024, with units delivered rising just 1% in comparison to 2023. But revenues grew a respectable 5% (not bad for a mature company), and profits, although down in Q4, improved by a whopping 35% for the full year, reaching $1.46 per share, or $5.9 billion in total. Ford also reported $6.7 billion in adjusted free cash flow for the year.
That’s the good news. The bad news is that in 2025 Ford expects both earnings and free cash flow to decline significantly, as the company focuses on reducing the cost of its vehicles (i.e. price cuts to spur sales), and improving vehicle quality. Operating profit will range from $7 billion to $8.5 billion (and net profit after taxes will be less than that). Free cash flow will decline steeply to somewhere between $3.5 billion and $4.5 billion, so $4 billion at the midpoint, a 40% decline.
And now, the numbers from Tesla
In some respects, Tesla outperformed Ford in 2024; in others, it badly underperformed. Notably, Tesla revenue rose only 1% year over year. What’s interesting here, though, is that revenue from actual car sales at Tesla declined 6%. All of the company’s sales growth came from its services and solar and storage businesses, which grew 27%, and 67%, respectively.
Profits at Tesla drove off a figurative cliff, collapsing by 53%. Tesla actually out earned Ford last year, with $7.1 billion in net profit. But that was less than half Tesla’s earnings from 2023. On the other hand, Tesla’s free cash flow for the year greatly underperformed Ford. Not only was it only $3.6 billion (so Tesla generated about half of Ford’s cash profits). It was also down 18% year over year.
Turning to guidance, Tesla promised to double down on what worked in 2024, in 2025. “We expect the vehicle business to return to growth in 2025,” promised management. At the same time, though, Tesla placed more chips on its fast-growing solar and storage products business: “We expect energy storage deployments to grow at least 50% year-over-year in 2025.”
Guidance was restricted to these glowing generalities on sales growth, however. Management gave no clear picture how much profit it expects to earn this year, nor how much free cash flow it hopes to generate.
So what should you buy, Ford stock or Tesla?
I know Tesla stock has a lot of fans, but at a valuation of 152 times trailing earnings the stock simply looks far too expensive to offer any reasonable chance of upside from today’s prices. Don’t even bother asking about the price-to-free cash flow ratio. That’s more than 300x, a multiple that can best be described as irrationally exuberant.
In contrast, Ford stock trades for a svelte 6.2 times trailing earnings and is even cheaper when valued on FCF, only 5.5x. True, Ford’s earnings will probably roll back a bit in 2025, before starting to grow again. But with a dividend yield of 8.1%, Ford stock doesn’t need to grow at all to justify these multiples.
I think it’s a much better use of your investment cash. If I had $75,000 in new cash to invest, given just these two choices, I’d put it all in Ford stock, and none in Tesla.
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