After gaining market share and seeing sales in January increase more than 7% recently, Ford (F) stock steadily rose until it fell just shy of $13/share. Of recent the stock has fallen, along with the market as a whole, on the heels of political unrest in Greece. This pullback represents an opportune time to open, or add to, a position in Ford.
Looking away from the markets, though, Ford on its own deserves a valuation higher than what it has currently. There has been no negative news on the company that would allow it to deserve such negative price action. Fundamentally nothing has changed and I expect that once the market moves past the politics in Greece, we'll see value hunters return to the market and boost the shares of Ford. A discounted cash flow analysis, operating on the assumptions of 9% weighted average cost of capital (WACC) and an annual growth of free cash flow of 3%, arrives at an estimated "fair value" price of $16/share.
The company has eaten the market share of overseas competitors as natural disasters have affected the supply lines of those companies. For has also begun paying a dividend again, something that many investors were looking for. While the dividend is only a modest 1.61% against the current share price, Ford's CEO alan Mulally did not deny the notion that the company could raise the dividend over the next two years. Saying only that "...we'll definitely consider based on the economic situation and where we are, because it's just another very important use of our cash, but clearly where we are in the growth cycle worldwide will be a primary consideration."
I strongly believe that this is a buying opportunity in Ford, and I am acting on this recommendation through the use of long dated call options. I am currently long the January 2013 12.50 strike Calls which currently trade around $1.52/contract and will look to augment my position moving forward.
You can see my original article on Ford here.