Morgan Stanley upgrades Ford stock to Overweight

Yahoo Finance Live anchors discuss Morgan Stanley upgrading Ford from Equal to Overweight.

Video transcript

BRIAN SOZZI: Welcome back. After two straight days of big gains for the market, we were seeing a little bit of a consolidation in the pre-market off of that decent ADP jobs report. We'll see if that reverses course before 10:00 AM. But Brad, let's start with a few hot tickers on our platform here.

Shares of Ford on the move after influential Morgan Stanley analyst Adam Jonas raised his rating on the automaker from equal weight to overweight. Jonas thinks the pullback could be a buying opportunity for investors and that the signing of the Inflation Reduction Act could boost Ford's US electric vehicle business. Jonas did have a more downbeat take on Ford rival, GM, though.

But let's lock in on Ford. This comes really after a major sell off in Ford in recent weeks following that major financial warning from Ford a couple of weeks ago. So certainly the sell off justified, but maybe a little bit overdone here, at least according to Jonas.

BRAD SMITH: Yeah, and we just got September sales this week that really kind of highlighted some of the demand that Ford is seeing, at least at this point in time. And in a key category here. When you think about the F-series, and how well that has performed for them for decades, and the interest that is now overflowing into the EV landscape too. They highlighted that in September, F-150 Lightning continues right now as America's best-selling electric pickup truck.

And so with that in mind, with the shift that Ford is making and through its two businesses now that it's essentially going to be moving forward with in the ice side of the business. And then on the other side, you've got the Model E side of the business, which is electric focused. It's really going to come back to how well they're able to sell through that pickup truck and how much-- and how well they're producing that. So it could provide them the best catalysts for some of that long-term value that Adam Jonas is looking at here.

BRIAN SOZZI: And Jonas going, I would say, going a little bit savage on General Motors here. So obviously not upgrading the stock like he did with Ford. But noting this, he moves the valuation of GM China to zero, which is interesting because Cadillac, which is under that GM umbrella, has always done very, very well in China, and to my recollection has been doing well in China. So interesting to see that.

Also removes General Motors' Cruise and Ultium battery, third-party battery, business from the valuation model. So that is an interesting maneuver as well. But clearly Morgan Stanley, influential analyst, more bullish on Ford than GM.

BRAD SMITH: Yeah, and the Inflation Reduction Act also noting that could boost Ford's US electric vehicle business here too. But it's still going to come back down to getting the parts, getting the components so that you don't have just a shell vehicle that is sitting out there.

[INTERPOSING VOICES]

BRIAN SOZZI: You have to have heated seats.

BRAD SMITH: You've got to have the heated seats.

BRIAN SOZZI: That's like at a minimum now.

BRAD SMITH: Well, I mean, one of their competitors is going to charge up for that. So they've got to ensure that they're also not going to be layering on that subscription cost for the heated seats. However, for Ford, at least in the broader context of the automotive landscape right now, over the next two to three years as some of the capacity for chips does ramp up in production, especially domestically here, it's really finding those partnerships, securitizing those deals to make sure that you have the chip supply in order to just make sure that there aren't the production snags that are going to result in shortages affecting tens of thousands of vehicles too.

BRIAN SOZZI: Yeah. And I think what you're seeing too, and you mentioned, you're always talking about chips, Brad, but also I think you're finally now starting to see cars become a full connected experience and create that recurring software revenue. GM has gotten pretty crafty.

They have an app called My Chevrolet that lets you check the diagnostics of these cars via an app. Well, it's not free. It costs $25 a month at a minimum. And if you want the premium one, if you want to check your tires and how much battery life you have in your car, it's about $40 a month.

So it is-- they're trying to create recurring revenue after they sell you that vehicle. And General Motors is doing a pretty good job of it. It's a pretty slick system.

BRAD SMITH: Can't you just sit-in the car and check those things?

BRIAN SOZZI: Well, you could, but if I'm here right now, and I'm wondering if my tires at home have air, I'd like to do that. But is it worth $25 a month? I don't know. I don't it is.

BRAD SMITH: It could be. It could be. If it mitigates some of the risk for you and your vehicle experience there, everyone.

BRIAN SOZZI: Still not on Prime, right?

BRAD SMITH: Still not on Prime. Yeah.