Ford F-150 Lightning electric-powered pickups.
Courtesy of Ford
One day, you’re going to regret letting the current market crisis pass without taking advantage of battered stock prices.
You may not realize it now, but it will hit you in a few years when some talking head points to a chart that shows how much money investors could have made if they bought during the dark days of 2022.
Finding winning stocks is always difficult—especially now, with the Federal Reserve raising rates and so many people afraid that a recession will stifle global economic growth—but Ford Motor (ticker: F) is among the stocks that make it possible to inexpensively monetize enduring investment themes. The auto maker seems intent on making itself into a future leader in electric vehicles even though its stock price suggests the company is a total mess.
Ford’s stock is down 47% this year, far more than the S&P 500 index. The stock chart is so bad that lower lows wouldn’t be surprising if second-quarter earnings, due July 27, are disappointing.
Yet there is a glimmer of optimism in the darkness. Ford just reported that sales of its all-electric F-150 Lightning pickup truck increased to about 1,800 units in June from about 460 in May. The numbers are small, but they could offer a meaningful glimpse of the future.
The F-150 is America’s most popular truck. Over 726,000 of these gasoline-powered icons were sold in 2021 to people who probably care more about load-hauling capacity than gas mileage. The rise in electric-truck sales suggests a change among a loyal consumer base that probably looked upon them with little interest when gas was cheaper.
Historically high gas prices have enabled Ford to prove to customers that it’s possible to keep everything they admired in the traditional F-150 while benefiting from a powerful engine that runs on electricity.
Demand is so high that Ford has stopped taking nonbinding reservations to buy the truck. If all the reservations become orders, Ford has a three-year order backlog for a truck that costs about $40,000 to $95,000.
Patient investors who aren’t concerned with the risk posed by Ford’s July earnings report can just buy Ford stock and wait for the stock to recover.
With the stock at $11.06, options investors can consider selling Ford’s January $10 puts for about $1.05 and buying the January $13 calls for about 84 cents. The risk-reversal—that is, selling a put and buying a call with a higher strike price but same expiration date—pays investors to buy Ford stock at $10 and to profit from gains above $13.
The key risk to the strategy is if Ford’s stock is below $10 at expiration, which would obligate investors to “roll” the put to avoid assignment or to buy the stock at $10 even if the shares are lower. Should the stock rally higher, the call will increase in value. At $15, the call is worth $2.
During the past 52 weeks, Ford’s stock, which has a dividend yield of 3.6%, has ranged from $10.61 to $25.87.
Ford’s stock performance is bad; it suggests investors are in a “Show me, don’t tell me” mood. Even a March announcement that Ford was changing its organizational structure to focus on high-volume EV platforms and enhancing manufacturing and engineering has failed to entice investors.
The hesitation to embrace Ford may grow if economic conditions worsen. The U.S. economy is probably entering a recession. Interest rates are rising to combat inflation, and the mighty American consumer is expected to reduce spending, which is likely bad for car sales.
But anyone who can look beyond these challenges—and who can afford to buy when everyone else wants to sell—may one day get a positive charge from the stock.
Steven M. Sears is the president and chief operating officer of Options Solutions, a specialized asset-management firm. Neither he nor the firm has a position in the options or underlying securities mentioned in this column.
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