The growth mania that has gripped the markets rewards no-profit, cash-incinerating companies such as Tesla and punishes steady performers like Ford.
Wall Street has been beating up on Ford. The automaker's stock has declined by 30% over the past three years, a time when US car sales have been booming and the S&P 500 surging.
Ford seems helpless to turn this around. The company continues to book solid profits and pay investors a dividend that yields more than 5%.
Investors, it seems, are gripped by a growth mania that rewards no-profit, cash-incinerating companies such as Tesla and punishes steady performers like Ford. Ford's shareholders are frustrated that the stock isn't doing better even relative to General Motors, Fiat Chrysler Automobiles, and Ferrari.
This frustration seems to be making its way into the management ranks too. There were plenty of negative vibes around its annual shareholder meeting last week, and the company has been guiding for a less profitable year than 2016's record, when the carmaker wrapped up with almost $11 billion.
More recently, come reports that CEO Mark Fields is planning to lay off 10% of the company's global white-collar workforce, in a bid to appease investors.
That news did nothing for the stock in the short term, but it could prove helpful down the line.
It's worth remembering that Ford did beat the benchmarks up until last year. In fact, for 7 1/2 years after the financial crisis, the shares clearly outperformed the S&P 500. It's only recently that the broader market index surpassed Ford.
If you bought shares in 2007, you would have seen a big and scary dip during the financial crisis, when the US market cratered and both GM and Chrysler went bankrupt. The stock was dirt cheap for a while, less than $2 a share.
But the troubles of Ford's Detroit rivals were a buying signal — there was no guarantee that GM and the new Chrysler-Fiat tie-up would succeed. Ford, precarious as its position was, offered the only play in the US auto sector and managed to get through by borrowing billions before the credit markets locked up, selling off some assets — and, notably, without a government bailout.
And as the market recovered, Ford surged well ahead of the S&P 500 all the way until the middle of last year.
Right now, investors are thinking about the next downturn, as US auto sales come off an astonishing peak. But this is where they're also losing touch with fundamentals. The challenge is that the situation could look worse before it gets better. The line from Ford is that the company is being patient and sticking to its plan, sustaining its dividend strategy to compensate investors for holding the stock and looking forward to another strong sales year in 2017 and continued profits.
Ford's mix of products should continue to serve US demands for pickups and SUVs — and, to date, nobody is predicting an economic shock or a spike in gasoline prices that could derail sales of costlier gas guzzlers.
But the stock-price decline, coupled with Tesla's baffling rally, has undermined the company's approach. Fields and Ford's board were probably content to chill out and avoid trying to change what they couldn't control.
It seems the negative sentiment around the company is pressuring them to execute layoffs. Investors may not be reacting to that move now, but it could actually prep Ford well for a sales downturn and recovery. By slimming down when it doesn't have to, it will be leaner and meaner when those qualities count.