It's been a few days since Ford (F) CEO Jim Farley announced a deal with Tesla (TSLA) CEO Elon Musk that would see the world’s largest pure-play electric vehicle (EV) manufacturer give one of America’s most iconic businesses a leg up in the EV charging game.
Early in 2024, Ford EV owners can charge at one of the more than 12,000 Tesla Superchargers in the U.S. and Canada. Even better, once Ford delivers its next generation of EVs around 2025 -- they will come with a Tesla charging plug -- Ford owners won’t have to use an adapter to charge up at Tesla Superchargers.
As for General Motors (GM). Crickets.
“The news is obviously a positive for Ford shares today (and potentially near term negative for GM/STLA), but ultimately, we think this should be viewed as Tesla playing the long game,” CNBC reported the analyst’s comments in a May 26 note to clients.
Tesla is looking to generate revenue from its Supercharger network. This deal is likely the first of many with other manufacturers. It’s still early, so GM doesn’t have to put its hat into the ring. However, it better not wait too long, or potential customers will leave it for Ford in the not-t0-distant future.
On Thursdays, I like to talk about a single company’s unusual options activity. However, given Ford had one of the most unusually active options on Wednesday, I will look at which of the two Detroit car businesses has the better options to buy.
Ford’s Busy Day
On Wednesday, Ford had seven unusually active options (expiring in seven days or longer) on the day; GM had three. GM’s were all calls, while Ford’s were split with four calls and three puts.
Interestingly, one of GM’s unusually active options had a Vol/OI (volume-to-open-interest) ratio higher than Ford on a similar volume. GM’s Vol/OI ratio was 48.84x, putting it in the 12th spot on the day, compared to Ford in the 17th position at 32.11x.
As for the other eight unusually active options on Wednesday between the two companies, the next highest Vol/OI ratio was a Ford put at 2.54x.
So, first, I’ll consider both options as if I feel the two companies are equal in every way.
The Ford option was the Aug. 18 $11 put with a bid price of $0.41. With 78 days to expiration (DTE), if you sold a put, your annualized yield would be 15.9% based on its $12 closing price. That’s a lot better than current short-term interest rates.
If the share price fell below $11 by its August expiration, you’d be forced to buy its shares. If so, the premium income turns into a net purchase price of $10.59. The last time Ford traded at $10.59 was in January 202128 months ago.
Given the recent announcement, I have difficulty believing it would fall 12% in less than three months, but I never say never.
GM’s Unusually Active Call Option
On Wednesday, as I said earlier, GM had three unusually active options, all calls, with three different DTEs: eight, 22, and 78 days. The call with the 48.84x Vol/OI ratio expires on June 23. It has a $33 strike, expires in a little over three weeks, and has an ask price of $0.91.
Based on its $32.41 closing price, you have the right to buy GM shares at $33.91, about 5% higher than its May 31 closing price. GM hasn’t traded at this level consistently since 2020.
From where I sit, both companies’ shares seem unlikely to fall too much in the next 11 weeks. So, the delta on the GM call is 0.44575, which means a 92-cent increase in share price should double the value of the call, allowing you to sell it without exercising your right to buy GM stock.I guess what I’m trying to say is that the risk/reward proposition on this call is tilted in your favor.
The question to be answered is which of these two stocks would you rather still hold five years from now?
The Better Business Is …
According to Barchart.com analyst data, GM is a Moderate Buy (3.75 out of 5) with a $49.12 mean target price, while Ford is a Hold (3.29 out of 5) with a $13.94 mean target price.
Based on their Wednesday closing prices, according to analysts, GM has a 52% upside over the next 12 months, while Ford’s is 16%. So at least from the analysts’ standpoint, GM appears to be the better stock to buy.
But that’s not the same thing as a better business.
Barron’s recently published an article about Stellantis (STLA) needing to remind American investors how much the U.S. means to its business.
“Stellantis (ticker: STLA) is 60% exposed to North America based on 2022 [operating profit], and is well positioned in the U.S. with Ram and Jeep, which we estimate cumulatively represent about 75% of U.S. vehicle sales,” Barron’s contributor Al Root reported RBC analyst Tom Narayan’s comments from a note to clients.
Root highlighted that STLA stock trades at 3x its 2024 earnings estimate, Ford trades at 6.9x, and GM at 5.4x.
As Barron’s article states, everyone is chasing Tesla. However, Ford partnering with Tesla in North America suggests that it, not GM, is the better of the two businesses.
So, Ford's is the better of the two unusually active options for me.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
