Some stocks are cyclical, moving up and down in a somewhat predictable manner. Other companies tend to have steadier returns over time, making for a reasonable investment for the long haul.
Sometimes, however, a cyclical company can develop in a way that allows it to undergo a structural change as well. That’s where a new product or service creates substantial new value. It may create a new cycle, or simply break the pattern of trading in one.
Traditional automotive companies are breaking the cycle of car sales thanks to the growth of EV offerings. In that space, automaker Ford (F) has a strong win out the gate with demand for the electric version of its F150 pickup truck.
Yet shares are down 10 percent more than the S&P 500 over the past year, as the market has treated the company’s rising sales as though it’s under the old cycle. That’s taken shares down to 4 times earnings, 6 times forward earnings, and now shares are right around book value.
Action to take: The industry leading company – which didn’t need a bailout during the financial crisis—is trading at an attractive valuation. And shares yield about 3.6 percent here. That could grow in time, but for now, the company’s growing mix of EVs should lead to higher sales for years to come as a new cycle is underway.
For traders, the January $13 calls are going for just over $1.00. They can likely see a mid-to-high double-digit return by the end of the year on a continued rebound in shares from their recent low.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.