This Surprising Stock Pick Is 27% Undervalued and Yields 4%

Ford isn’t a typical stock pick from Morningstar. We don’t think the company has an economic moat, and we think there’s a high degree of uncertainty around its cash flows, given the cyclicality of the auto industry, Ford’s union relationships, and potential business disruption as vehicles become more high-tech and autonomous. Yet we haven’t felt this optimistic about Ford’s progress in years. The company has new verticals developing in energy storage, and software services such as BlueCruise could add 50 basis points of EBIT margin annually in the future. We see potential for the shares to trade well into the $20s if the market chooses to be more optimistic on Ford’s prospects. Plus investors get paid to wait: The stock offers an attractive 4% dividend yield. Ford was one of Morningstar Chief US Market Strategist Dave Sekera’s stock picks on a recent episode of The Morning Filter podcast, 5 Undervalued Stocks to Rent, Not Buy.

Ford emphasizes light-truck models in the United States, which we think is the right move, since light trucks are over 80% of US industry new light-vehicle sales. Ford’s challenge is to increase share profitably while elevating Lincoln into a global luxury brand, scaling electric vehicles, and containing costs such as excessive warranty spending, which it had some success with in 2025 via $1.5 billion in cost cuts, excluding tariffs. The no-moat nature of the auto industry makes these tasks very difficult, and we see headwinds from areas such as restructuring and commodities while investments in electrification take years to pay off.

Key Morningstar Metrics for Ford

• Fair Value Estimate
  : $19
• Star Rating
  : 4 Stars
• Economic Moat Rating
  : None
• Uncertainty Rating
  : High

Economic Moat Rating

Ford does not have an economic moat. Vehicle manufacturing is very capital-intensive, but barriers to entry are not as high as in the past. The industry is already full of strong competition, so it is nearly impossible for one firm to gain a durable advantage. Automakers from China may soon enter more developed markets, and Hyundai, Kia, and Tesla have become formidable competitors. Nascent EV makers such as Rivian and Lucid could also be a serious threat if they survive. Furthermore, the auto industry is so cyclical that in bad times even the best automakers cannot avoid large declines in return on invested capital and profit. Consumers also have no switching costs when they want to buy their next vehicle.

Read more about Ford’s moat rating.

Fair Value Estimate for Ford Stock

Our fair value estimate is $19 per share. 2025 results suggest to us that Ford may have finally figured out how to meaningfully reduce its cost base, excluding tariffs, with $1.5 billion of reduction in 2025 and another $1 billion expected in 2026. Our midcycle total company EBIT margin estimate is about 7.0%. In 2025, tariff costs dragged this metric down to 3.6% from 5.5% in 2024. Our compound annual automotive revenue growth rate is slightly over 4%. We model capital expenditure of around 5.5% of automotive revenue on average, totaling $51 billion for 2026-30. We value Ford Credit at its 2025 year-end book value of $14.8 billion.

Read more about Ford’s fair value estimate.

Risk and Uncertainty

Ford has wasted a lot of capital on its bet on EV adoption, which proved too slow following regulatory changes in the US. Barriers to entry are declining as a growing global market reduces fixed costs as a percentage of sales for new entrants. The company operates in a very cyclical industry. Macroeconomic conditions, rising interest rates, commodity prices, and trade agreement and tariff changes in key markets can quickly derail management’s plans, while significant disruption is on the horizon as vehicles become more high-tech and autonomous. We are concerned about a very long United Auto Workers strike in May 2028.

Read more about Ford’s risk and uncertainty.

Ford Bulls Say

• Ford’s turnaround will take time, given the many restructuring projects around the world, but partnerships like Renault may help share cost burdens, and Model e is expected to be profitable in 2029.
• Ford is focusing its investment where it gets the best return, which is why mostly exiting North American car segments and South American production was the right move, in our opinion.
• Software and data services for fleet customers are a new and lucrative margin stream for Ford.

Ford Bears Say

• The auto industry is very cyclical, and at times, Detroit automakers have lost significant US market share to foreign automakers. Competition has never been fiercer.
• Long-term profitability could be hindered by unions, which have recently become more powerful. Major nonunionized import automakers in the US mostly do not have this problem for now.
• Ford’s stock can sell off heavily on macroeconomic fears, even if the company itself is doing well. Furthermore, it takes significant investment to fund growth in the auto industry, which limits margin expansion.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of Aug. 25, 2026, close unless otherwise noted.