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Nasdaq F Ford

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Investors in Ford Motor Co. (Symbol: F) saw new options become available today, for the June 2023 expiration. One of the key data points that goes into the price an option buyer is willing to pay, is the time value, so with 434 days until expiration the newly available contrac

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Ford: Tremendous Value Despite Chip Shortage

4 years 6 months ago

Ford (F) is a well-known manufacturer of cars and trucks in the United States. I am bullish on the stock.

Back in March of 2020, when Ford stock was trading at around $4 per share, it felt like the automotive market was about to collapse. Some people weren't even leaving their houses, not to mention buying brand-new vehicles.

Of course, the Ford share price is significantly higher today than it was at the height of the COVID-19 crisis. If there's any lesson to be learned here, it's that contrarian investors should lean into negative sentiment, not run away from it.

Now, two years after Ford stock bottomed out near $4, the sentiment on Wall Street is starting to turn negative again. At times like these, it might feel scary, but it's a test of whether investors have the internal strength to apply the old principle of "buy low and sell higher."

So, is Ford stock a buy during these turbulent times?

Ford Stock: Breaking Down the Numbers

Both value seekers and income-focused investors alike should appreciate where Ford stock is right now. After topping out at $25.87 in January - which, admittedly, was too pricey at that time - the stock recently pulled back to a much more reasonable $15 and change.

Sure, some traders might fantasize about getting another chance to buy Ford stock at $4. However, investors should be sensible about their expectations; work with the data that's there, not the data you wish were there.

Is Ford stock at ~$15 reasonably priced? We can let the numbers guide us here. Currently, Ford's trailing 12-month price-to-earnings (P/E) ratio is 3.5. That's extremely low and suggests that Ford's share price is quite reasonable given the company's earnings.

Therefore, value hunters should thank their lucky stars for the recent pullback and jump at the chance to buy Ford stock at the current price point.

As for income-focused investors, they'll be glad to know that Ford pays a forward annual dividend yield of 2.4%. That's a nice bonus for folks who are prepared to hold Ford stock for the long term.

The Bumpy Road to Recovery

There's always an excuse not to buy great stocks at low prices. Indeed, some folks are undoubtedly talking themselves out of buying Ford stock now due to the ongoing global microchip shortage.

No one can deny that the chip shortage has caused problems for the automotive industry in general. It's awfully difficult to meet production schedules when the tech parts just aren't available.

Turning to Edmunds Executive Director of Insights Jessica Caldwell for insight into this situation, we can feel the disappointment in the air.

"We thought at this point, there would be signs that we would be kind of on that road to recovery, that the second half of 2022 would look a lot better, and it's starting to feel like that road to recovery is getting pushed back further and further," Caldwell mused in a recent interview.

Clearly, there's just no avoiding the chip shortage issue. Even Ford spokesperson Kelli Felker had to admit that there's a problem, acknowledging, "The global semiconductor shortage continues to affect Ford's North American plants — along with automakers and other industries around the world."

Felker made that statement just as Ford announced the hopefully temporary shutdown of its Flat Rock Assembly Plant near Detroit due to the semiconductor shortage.

Embrace the Fear

Great, so now you have a perfect excuse to avoid an investment in Ford stock if you were looking for such an excuse. You can point to the strained supply chains and the Ford assembly plant shutdown and feel good about staying on the sidelines.

However, you could have found equally valid-sounding excuses back in March of 2020, when it felt like the world was collapsing. After all, what better reason is there is to stay out of the stock market than the first global pandemic in a half-century?

Even if you had purchased Ford stock at $6 and then it fell to $4 a couple of years ago, you would still have booked multi-bagger gains simply by holding your shares. At first, though, you would have had to sustain a painful 50% drawdown.

That's the game contrarian investors play; you're not trying to time the bottom exactly. That shouldn't even be a goal. Remember, it's "time in the markets," not "timing the markets."

Wall Street's Take

Turning to Wall Street, F stock is a Moderate Buy based on seven Buy, six Hold, and two Sell ratings. The average Ford price target is $21.79, implying 42.9% upside potential.

The Takeaway

Do you really believe that the microchip shortage will last forever and that Ford will never get back into full production? If so, then you're probably letting fear get the best of you.

Instead, you can lean into the fear and place a reasonably safe bet on America's oldest and most established automaker. Ford stock is trading at a very low valuation multiple, and the company pays a nice dividend, too, so now is a great time to consider a long position.

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