GT- $5
The Wrath of Sol?
New York, BizBlog100@blogspot.com The prospect of an extended production lull, disappointing earnings and a continuing credit watch have caused a 2-month, 36% decline in GT. Imminent bankruptcy at #1 customer GM and the general condition of automotive life in mid-America are other factors.
These fundamentals are reinforced by the reduction in GT investment rating by Sol Ludwig, tire industry sage at Key Bank Investments (and other places before). I don’t know Sol’s reasoning but the foregoing are reasonable explanations, perhaps accentuated by general market conditions.
I remain a GT stockholder because I have seen tire stocks come off the cycle bottom to significant earnings and strategic appeal. Goodyear is a primo name and will prosper, albeit later.
The small reductions in domestic tire capacity in no way offset the overall decline in volume and increased offshore capacity. But, from current levels, industry volume will either get better --- or get a little worse and then get better. The stocks move on production!
A weaker dollar will help, since a majority of GT sales are abroad and a weaker dollar will challenge import pricing. But maybe the greatest benefit of the weaker dollar will be the Semi-Sovereign wealth funds accumulating in Asia. These and related entities are investing extensively in (China, Thailand, Indonesia, Malaysia) in tire capacity. It is inconceivable to me that they will not invest the incremental $2-$3 billion necessary to acquire a brand of Goodyear stature.
Back to Sol. I am not a current client so I have not seen his recent work but I recall earlier opinion changes and the only sure thing we know is that his outlook will brighten within a few months.
BizProf100
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