Ford Stock Is Good Value Here, Especially With Covered Calls

Mark Hake

Ford stock is very cheap now at just 5.9x with a 3.30% dividend yield and 12.9% in covered call income

This is not financial advice and you should not rely on my analysis to buy or sell any stock. I am not undertaking to induce you to buy or sell any securities. I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

Ford Motor Company (F) stock is very cheap now at just 6 times earnings forecasts for 2003 with a 3.29% dividend yield. In addition, short-term out-of-the-money calls can provide an additional 12.9% in annualized income. Let's look at this.

Ford is in the midst of making a transition to become a significant electric vehicle (EV) manufacturer. In fact, it has already announced it will split its auto business into two units: Ford Blue, for traditional gas- and diesel-powered vehicles, and Ford Model E, for new electric models. As a result, it says it will be able to produce 2 million EVs by 2026. 

This compares with Tesla (T), the premier EV maker with over 70% market share in the U.S., which already is projected to make roughly 1.4 million EVs this year alone.

Analysts now forecast that Ford will make $1.92 per share this year and up to $2.06 in 2023. So, at today's price of $12.11, Ford stock trades for 6.31x 2022 earnings and 5.9x for 2023. 

Moreover, Ford pays a dividend of 40 cents annually. That gives the stock an annual yield of 3.30%. In addition, investors can make good money with covered call income plays.

Covered Call Income

Right now, the Aug. 19 call options offer a good covered call opportunity, as the table below shows.

For example, the $14 strike price calls about one month out (Aug. 19) are priced at 13 cents at the midpoint. So, since the stock trades at $12.11, this provides over 1% in additional income (i.e., 1.073%).

Moreover, on an annualized basis, that results in an annual yield of 12.9% to the patient investor (i.e., 12.876%), assuming it can be replicated each month.

So, if you add the 3.30% dividend to the 12.9% covered call income potential, Ford stock offers an attractive total yield possibility of over 16% (16.20%) annually. This assumes that the out-of-the-money calls are not exercised if the stock were to rise to $14 by Aug. 19. 

But, even if it does, the investor gets to keep the capital gain of almost $2.00 (i.e., $14.00/$12.11), or 15.6%. Including the 1.073% covered call income the one-month potential gain will be 17.34%. That is a very good return for most investors, especially since it would be in one month.

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Mark R. Hake, CFA writes articles at InvestorPlace.com, Barchart.com, Medium.com, and Newsbreak.com as well as a Beehiiv free newsletter on stocks and cryptos.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

Phoenix, AZ
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