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The stock of The Goodyear Tire & Rubber Company (GT), which I first wrote about on May 5, 2009, at a price of $13.30, has given back most of the gains registered in 2009, but I still like the company's business model and prospects, for several reasons. First and foremost, it appears the long auto sector depression in the U.S. is over: miles driven fell substantially in 2009, due to fewer drivers and consumer belt-tightening. Further, while no one should expect 1960s-style suburban traffic growth, last year's negative mileage pattern is unlikely to be repeated in 2010.
Second, U.S. new vehicle sales have likely bottomed at roughly 10.5 million, and that fact, combined with increased tire replacement for used vehicles in service longer than expected, point to a modest 3% to 5% revenue increase for GT in 2010.
The First Call FY2009/FY2010 EPS estimates for GT are a loss of $1.12 and a profit of 73 cents.
Technically, as noted, Goodyear's stock has been in a downtrend for about six months, retreating from a high of $19 in the summer 2009 to about $13 currently. However, I would expect to GT to hold support at/near $11.
2010 Outlook: I view Goodyear as a long-term play, but if investors are looking to sell GT within the year, it's probably best to take your profits after it rises to $18 to $19, if it fails to rise above $20.
Stock Analysis: I consider Goodyear to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, and I was interested in buying stock in this company, I'd consider buying a 25% position in GT now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my GT position before April 2010 and I'd put a sell/stop loss at: $6.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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