Summary
- I already have Ford shares, but am selling September puts to generate income and add on a further decline.
- The semiconductor shortage is giving maybe a last chance to buy Ford shares around $10-11 per share.
- Wired just published an article about Ford’s 4IR technology that echos what I have been saying since January 2020 after CES.
- If you don’t own Ford shares, then you can take a starter position in addition to selling some puts.
Ford (F) stock is off on the semiconductor shortage impacting their new car sales. I think this is a very short-term issue that will resolve in coming quarters. The sell-off I think is reactionary and does not take into account Ford’s long-term advantages and business outlook.
Further, the semiconductor shortage is relative as most companies are facing very similar issues. For companies trying to catch up to Tesla in the next few years, lower new car sales now is likely a good thing as improved production of EVs will meet up with pent up demand in the next few years, especially if employment rises as expected on the massive fiscal stimulus.
I am buying Ford shares in accounts that did not previously have shares and am selling cash-secured puts in appropriate accounts as well.
F Is For Favorite
Ford (F) is one of my favorite stocks based on my long-term outlook for the company. Here is the summation of why they are a top 20 company for me:
- Eliminating their dividend last year gave Ford a ton of financial flexibility in the short and intermediate term.
- Their 4th Industrial Revolution technology (4IR see the #4IR hashtag on Twitter) is top tier globally. See Wired piece (well worth the $5 1st year digital subscription and one of the last magazines I get).
- Their 4IR technology allows them to enter other manufacturing spaces quickly and efficiently, i.e. gearing up their robots to make ventilators in 2 weeks last year.
- I expect them to do more joint ventures and enter new high margin business lines, i.e. defense, in coming years.
- I think it is likely that Ford partners with a solar power company (SPWR) (RUN) to offer energy solutions for their customers.
- Their real estate portfolio is valuable and getting more valuable as supply chains move back to America.
- Oh yeah, they’re going to outsell Tesla (TSLA) in EVs with the Mustang Mach E and F-150 because a lot of Ford customers are Ford customers, and they’re going to win a lot of head-to-head comparisons. Read this piece from MotorTrend and you’ll realize that the first generation Mustang Mach E is within a whisker of Tesla’s Model Y which has been in development since 2013.
- The dividend will be back eventually. After the financial crisis, Ford reinstated its dividend in 2012. I would anticipate the dividend comes back by 2024 which coincides with a lot of the capex commitments being completed. Before then, there will be share buybacks which have the effect of supporting share prices by reducing supply of shares, as well as, reducing the amount of money paid out in dividends which is good for the balance sheet.
There’s also more qualitative things to consider with Ford. While I have not been a “Ford guy” in my life, I respect that they did not declare bankruptcy during the Great Recession and that they treat their employees very well.
I think a lot of people feel good about Ford and respect them.
Things like this from a recent press release fortify those feelings:
- More than 82 percent of the vehicles that Ford sells in the U.S. are assembled in the U.S., more than any other full-line automaker, according to IHS Markit 2020 light vehicle production and sales data.
- Ford assembled more than 1.7 million cars, trucks and SUVs in the U.S. in 2020 – 188,000 more vehicles than any other automaker – even during the COVID-19 pandemic, which disrupted industry production and supplier parts availability.
- Ford exported more than 280,000 U.S.-assembled vehicles to markets outside of the U.S., more than any other auto manufacturer, and one of every six vehicles assembled.
- Since late 2019, Ford has announced it will invest $2 billion, add approximately 3,000 hourly jobs and retain hundreds more in the U.S. This is part of Ford’s commitment to invest $6 billion in its U.S. plants and create and retain 8,500 hourly jobs in the U.S. as part of its current contract with the UAW.
- Ford is the industry’s largest employer of hourly UAW autoworkers with more than 57,000.
- Ford supports 1 million American jobs and contributed more than $100 Billion to U.S. GDP, according to a 2020 study by Boston Consulting Group,Ford Motor Company is again the top automaker in America in terms of production, vehicle sales
Over the past century, a lot of people have become “Ford people.” These folks have bought Fords for generations in their families. That will keep on. Inertia is a tough thing to break.
That goodwill gives Ford an edge in “tie-breakers” when folks select cars. There will be a lot of ties on car comparisons as companies ramp up production of EVs and drive down costs.
Trades I’m Making In Ford Today
I expect Ford to be the leader in U.S. vehicles sales for a long time. When the market realizes that, will Ford’s market cap ($45B) still trade at 1/14th the market cap of Tesla ($650B)? I don’t believe so. I believe there will be a convergence somewhere in the middle.
Add the other business lines coming and real estate value, and Ford is vastly undervalued in my opinion. I believe Ford shares are a likely triple from here by mid-decade and are possibly a ten-bagger if the Reddit Army, or Millennials in general, fall in love with Ford too.
Subscribers with me for a while already have Ford shares from a cost basis between $5-10. This is a chance for newer members to add this important long-term position.
For accounts without Ford, I am adding a starter position in Ford today.
For accounts that use options and have a Ford position, I am selling the $11 September puts for over a $1.
For accounts that use options and don’t have a Ford position, I am buying a starter position and selling the $11 September puts for over a $1.
As always when selling puts, start your premium price a bit higher than the ask, then monitor it during the day to see if you have to bring it down a bit.
(I will be doing a few pieces on Ford between next week and mid-June that will break each piece of the company down. Those pieces will be public about a day after appearing here. I suggest having a Ford position by then at the latest.)
Disclosure: I am/we are long F, SPWR.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
