Analysis: Why Investing in Ford Motor Company Might Not Be The Best Move

Reasons to Stay Away from Ford Motor Company

There is no shortage of reasons to be bearish about this business. While the stock market generally goes up over time -- due mainly to rising sales and earnings of businesses -- there are some companies that are best kept out of one's portfolio. That's particularly true if one is trying to outperform the broader indexes over the long term.

Focus on the Big Picture

To its credit, Ford (NYSE: F) reported decent financial results in the three-month period that ended March 31. Revenue was up 3% year over year to $42.8 billion. And while diluted earnings per share dropped 25%, the figure still came in well ahead of Wall Street estimates.

In a vacuum, those numbers might be fine. But if we zoom out, there's not a lot to like about this business.

Warren Buffett's Thinking

Berkshire Hathaway just had its annual shareholder meeting, with investors once again eager to hear Warren Buffett's wisdom. I think it's appropriate to consider what the Oracle of Omaha said at the 2015 meeting -- words that apply to Ford.

Any business with heavy capital investment tends to be a poor business to be in in inflation and often it's a poor business to be in generally, he said.

Ford is an extremely capital-intensive enterprise. It must always invest heavily in factories, research and development, and marketing -- things that are table stakes just to maintain its industry position. But based on the company's historical performance, whether we are in an above-average inflation situation or not, Ford really struggles to report financial results that are anything to write home about.

One could point out that these financial disadvantages don't matter in stronger economic periods, so it might just be smart to scoop up the stock right before the economy turns from a downturn to growth mode. However, no one can accurately predict the timing of the economic cycle. And this highlights the fact that Ford is a very cyclical company -- yet another reason I wouldn't touch the stock with a 10-foot pole.