Here Is Why Shares of Ford Are a Value Trap That Is Best Avoided

Ford Motor (F)  is trading at about seven times forward earnings estimates, making it appear to be a bargain proposition.

But that is a mirage. Ford Motor's stock price factors in the company's recent poor performance records, and it is poised to fall further.

Ford Motor is losing market share in both Europe and North America. Factories are being idled, and the company has come under fire from President-elect Donald Trump.

There are only a few factors working in Ford Motor's favor including that the company's trucks division has reflected healthy movement, China has been largely positive and the 5%-plus yield is tantalizingly attractive.

However, Ford Motor's ability to sustain is dividends is uncertain and vulnerable. In fact, peer General Motors is also battling a similar set of challenges.

Ford Motor's strongest market -- the U.S. -- is under a cloud. Third-quarter pre-tax profits in North America plummeted 57% from a year earlier.

And as sales declined, costs increased correspondingly.

Ford Motor has lost its way, and the lack of direction is evident in its retail sales numbers, showing that customers are clearly unhappy.

The entire automobile landscape is in the middle of a paradigm shift.

Electric-vehicle owners prefer Tesla Motors, despite its sluggish delivery standards.

Japanese companies such as Honda Motor and Toyota Motor have also witnessed occasional growth spurts. They are, however, not immune to cyclical downturns, either.

Customers who prefer luxury cars will continue to stick with Ferrari, driven by the company's legendary brand promise. Ford Motor, on the other hand, remains wedged between pick-ups, costly product recalls and the absence of solid sales incentives.

Europe looks equally dismal. Although Brexit-related woes could be one reason, the problem runs deeper.

October and September European car registrations for Ford Motor were weak, and the company's market share slipped to 6.8%. Fourth-quarter overall operating margins reflected Europe's 2.2% level, behind figures in the Asia-Pacific region and North America.

Meanwhile, Ford Motor's tangles with Trump are well-documented. The automaker is facing his ire for allegedly shifting thousands of American jobs to Mexico and elsewhere.

Interestingly, Ford Motor isn't looking at being conciliatory. Ford Motor's new EcoSport is likely to become the smallest sport utility vehicle in the Detroit automaker's line-up, and the model will roll-off an assembly line in India.

If Trump does impose a hefty 35% tax on the products of companies that move their production outside the U.S. as he has mentioned, Ford Motor's fortunes could head further south. It is important for Chief Executive Mark Fields to step up and address these concerns, instead of behaving as if everything is under control and perfectly normal.

Although investors may be drawn in by Ford Motor's low valuation, the reasons behind the stock being down more than 16% this year are concrete and worrisome.

Ford Motor is undeniably a classic value-trap that is best avoided.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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