The Goodyear Tire & Rubber Company (NYSE: GT) is having a good day. Shares of Goodyear are up almost 8% in afternoon trading. Volume looks healthy, too. The company may have reported a loss for the second quarter, but since expectations were soundly beat, the market saw fit to bid shares higher (and I'm sure a fair amount of traders who short the stock were forced to cover).
According to Reuters, Goodyear said it lost, on an adjusted basis, 35 cents per share. That compares to expectations for a loss of double that amount.
Thus, the excitement surrounding Goodyear's stock can be easily understood. But is Goodyear out of the woods yet? Well, it reported a profit in the year-ago period. And tire volumes are down. Remember, the auto industry is still in a state of wretched despair. Sure, Ford Motor Company (NYSE: F) might have recently posted a decent earnings report from a special-item perspective, but don't kid yourself. Cars aren't so hot these days, and Goodyear is suffering along.
Goodyear continues to adjust to the recession, and quite frankly, whether you find the earnings discussion positive or negative (I tend to be in the latter camp), the stock is clearly signaling that the turnaround is in full force and that Goodyear will be a big beneficiary of a rebounding economy (whenever that truly happens).
Here's what I think. I myself am not interested in trading Goodyear off this Q2 release. However, the stock's price action since the beginning of the year is decidedly bullish. There's momentum to this story. I think it will be heading higher, so if you're interested in playing this stock, wait for a pullback and then consider buying in. I would definitely use a tight stop with this one in case the market negatively interprets the next collection of economic data.
Disclosure: I don't own any company mentioned; positions can change without notice.
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