Strange times: Imagine a scenario in which a major city goes bankrupt, but one of its biggest companies turns in it best earnings performance in years. Although technically it's based in Dearborn, Michigan, Ford Motor Co., (F), is the second largest US automaker, and has long been one of Detroit's "Big 3".
Ford's Q2 2013 earnings report included these highlights: "North America set second quarter and first half records for pre-tax profits; Asia Pacific Africa delivered its best-ever quarterly profit; Ford Credit delivered solid performance; South America returned to profitability: *Europe had a $348M loss, vs. $404M loss in Q2 2012:
Earnings Valuations: Ford raised its full year company financial guidance, and now expects total company pre-tax profit to be equal to or higher than 2012, and Automotive operating-related cash flow to be substantially higher than 2012. Looking ahead to 2014, the average analysts' forecast is for 17.48% growth, which, given Ford's 10.70 PE, makes it look undervalued on a 2014 PEG basis:
Ford looks undervalued vs. its industry, on a Price/Sales basis, but is currently commanding a premium Price/Tangible Book:
Dividends: Unlike many of the stocks we've profiled in recent articles, Ford isn't a high dividend stock. Faced with a cash crunch, Ford eliminated its quarterly dividend in 2006, and didn't reinstate until January 2012, at $.05. The company then doubled its dividend in January 2013, to $.10/share quarterly, which is where it stands currently. However, given Ford's low dividend payout ratio, there may a be a good chance that it will increase its dividends in 2014, if the projected earnings materialize. Ford goes ex-dividend on 7/31/13.
Options: You can improve upon Ford's dividend payout, via selling call options. This November trade, from our Covered Call Table, offers a call premium that pays 4 times Ford's next 2 quarterly dividends.
However, since the $17.00 call strike is only $.10 above Ford's $16.90 price/share, you may not get either of the 2 dividends, if Ford rises to or above $17.00 near either of the ex-dividend dates. (Your shares may be assigned/sold, in which case you'd pocket the $.10 price difference between the share price and the strike price.) Here are the various income scenarios for this trade:
Performance: Ford has had a big run up over the past 52 weeks, rising over 93%...
...So if you're leery of buying at this price level, you may want to consider selling cash secured puts. This November trade offers you a breakeven that's about 6% below Ford's price/share.
You can find more details on this over 30 other trades in our free Cash Secured Puts Table.
Financials: Ford's efficiency metrics are a mixed bag - it has an impressive ROE, but it trails its industry in these other metrics.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.