With the worst of the auto industry news potentially behind us, it's time to start considering the tire business as an investment, as the tire business is not only tied to new car sales. On the contrary! As consumers cut back on new car purchases last year, they actually increased their spending on new tires. The trend was to put money into repairing and replacing existing parts rather than buying new vehicles outright.
That said, a gung-ho recovery is not yet upon us, so there should still be some gas left in the trend. And here are a few companies that should continue to prosper in the meanwhile.
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The Oldest Names In Blacktop Grip
Goodyear Tire & Rubber Company (NYSE:GT) is synonymous with tires. And investors are thrilled to be owning the company's stock, having bid it up over 400% since its March low. Much of the buying was institutionally-based; Goodyear is 79% owned by professional money managers.
It appears the price increase came in response to a very aggressive cost reduction plan announced by management earlier in the quarter. Goodyear has committed to reducing personnel levels by almost 5,000 (after cuts of nearly 4,000 in the last two quarters of 2008) and instituting a company-wide salary freeze. In addition, plans are in the works to reduce production capacity worldwide by between 15 million and 25 million units between now and first quarter of 2011.
Cooper Tire & Rubber Company (NYSE:CTB) is another old industry stalwart. Incorporated back in 1933, Cooper now has eight manufacturing plants and 40 distribution centers spread across 40 countries worldwide. Cooper offers investors a solid annual dividend of about 3.9% and has seen equally impressive price gains since bottoming back in March. Since then, the shares have appreciated by more than 225% to stand currently at $10.60.
German Skid Proofing
Continental A.G. (OTC:CTTAY) is an outfit few have heard of, despite its size and hefty market reach. The company is based in Germany and supplies auto parts, including tires, for vehicles of every size. The company has a market capitalization of $5.71 billion and has, of late, refused to be tread upon by industry rivals. The stock has risen from $14.63 to $33.80 in two months, for a gain of 130%.
Last week, Continental's CEO, Karl-Thomas Neumann, commented that the second quarter should bring renewed profitability to the company after deep job cuts and an overall improvement in market conditions begin to take effect.
The Wrap
Driving these companies' earnings through the past year was less of a problem than many expected. And it may not be too late to jump on the bandwagon. Those investors who choose to buy now may end up freewheelin' when better times return. (Read Buy When There's Blood In The Streets to learn how contrarian investors find value in the worst market conditions.)
