What’s a good number at which to set your limit for a buy order for Ford Motor (F) stock? I’m looking at $10 as the magic number, not just because Ford stock bounced off $10 in November last year, but the company’s impressive vehicle-delivery stats for August, something that the market seems to be overlooking this, and let’s not forget Ford’s high dividend yield. That’s why I am bullish on F stock.
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Ford Motor is an iconic American automaker that produces both internal combustion engine vehicles and electric vehicles (EVs). Interestingly, a patent application indicates Ford is working on a system to turn roads into EV chargers.
Ford stock slid toward the key $10 level on Monday and then again on Tuesday morning. Looking through the recent news about Ford, there isn’t any terrible news about the automaker. Sure, Ford announced a recall of 90,736 automobiles due to engine intake valve issues over a week ago, but that shouldn’t justify a sustained share-price drawdown. Therefore, contrarians should look for a prime opportunity with F stock.
Ford Stock’s Low Price Allows for an Enticing Dividend Yield
When a stock’s price goes down, assuming the company doesn’t slash its dividend payouts, the result can be a high dividend yield. Since Ford currently pays a relatively high yield, this enhances my bullish position because a high dividend yield should entice income-focused investors to Ford stock.
Let’s delve deeper into Ford’s dividend. As of this writing, F stock trades at $10.27 per share. Lately, Ford has paid $0.15 per share in dividends each quarter. Ford is a consistently profitable company, and there’s no specific reason to expect the automaker to suddenly cut its dividend in the near future. Thus, it’s reasonable to conclude that Ford will pay at least $0.15 per share per quarter, or $0.60 per share per year, in dividend distributions. A $10.27 share price would equate to a forward annual dividend yield of 5.84%. Not too bad.
Meanwhile, the Consumer Cyclical sector average dividend yield is only around 1%. Hence, even if Ford cut its dividend in half (which isn’t likely to happen), the company’s dividends would still appeal on a sector-relative basis. So, that’s one reason for long-term investors to consider grabbing a few shares at or near $10.
Ford’s Valuation Multiple Backs Up the Bull Case
To establish the bullish position even further, let’s talk about valuation. Value-focused investors should investigate Ford’s multiple, which is comparatively low. This, along with the high dividend yield, is another effect of F stock dipping low. Ford’s relatively low valuation adds to my bullish thesis because value investors should favor a business with a low share price in light of the company’s earnings.
To keep it simple, I want to examine Ford’s non-GAAP-measured trailing 12-month price-to-earnings (P/E) ratio. Again, I will use a share price of $10.27 for Ford stock, though this will change constantly. Ford’s four most recent quarterly EPS readings were $0.39, $0.29, $0.49, and $0.47. Add those up, and Ford’s trailing annualized EPS is $1.64. Then, we can calculate Ford’s trailing P/E ratio as $10.27 / $1.64, which comes out to 6.26.
In comparison, the sector median non-GAAP trailing 12-month P/E ratio is 14.11. To put it another way, Ford’s P/E ratio is less than half of the sector median – a great value proposition, if you ask me.
Ford Reports Strong August Sales Numbers
With Ford’s low valuation, we have either a horrendous value trap or an excellent value proposition. We can look at Ford’s strong August sales figures to reinforce my thesis that F stock is a good value.
Ford sold nearly 183,000 vehicles in August, up 13.4% year-over-year, easily beating the overall industry estimate of around 6%. That’s not even the best part, though.
Partly due to strong F-150 Lightning electric pickup truck sales, Ford’s August all-electric vehicle sales increased 29% year-over-year. Best of all, Ford’s hybrid vehicle sales jumped nearly 50% in August.
Skeptics could complain that August is just one month, and this is certainly true. Nonetheless, Ford’s robust August vehicle sales growth indicates that the automaker and its dividend are probably not in jeopardy right now.
Is Ford Stock a Buy, According to Analysts?
On TipRanks, F stock is a Moderate Buy based on five Buys, nine Holds, and one Sell rating assigned by analysts in the past three months. The average Ford stock price target is $13.75, implying a 32.46% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell F stock, the most accurate analyst covering the stock (on a one-year timeframe) is Michael Ward of Benchmark Co., with an average return of 11.34% per rating and a 50% success rate. Click on the image below to learn more.
Conclusion: Should You Consider Ford Stock?
There doesn’t appear to be anything terrible happening with Ford to justify the recent share-price drawdown. Notably, Ford is profitable, sold plenty of vehicles in August, trades at a reasonable valuation multiple, and offers a juicy dividend. With all that in mind, I would consider owning F stock at or near the magic number of $10.
