The Goodyear Tire & Rubber Company (NASDAQ:GT)is poised to have a great year. The Goodyear Tire & Rubber Company (NASDAQ:GT) saw its stock jump some 16% over the last month, and I believe there is still room for the stock to move higher.
Higher demand for tires should be driven by an improving U.S. and global economy, which will promote an increase in miles driven and only further add to the pent-up demand for replacement parts.
Another positive is that The Goodyear Tire & Rubber Company (NASDAQ:GT) generates sales globally, but its key market is North America, making up 50% of revenue. One of the key drivers will be higher demand in emerging markets of Latin America, Eastern Europe and Asia.
About 70% of The Goodyear Tire & Rubber Company (NASDAQ:GT)’s tire units are targeted at the replacement market and 30% for original-equipment manufacturers (OEMs). The nice thing about this is that margins on replacement tires are typically higher than for original equipment tires.
Goodyear has also managed to extend its debt maturities, with no funded debt maturities until 2014, and no long-term debt due until 2016. Billionaire David Tepper is one of The Goodyear Tire & Rubber Company (NASDAQ:GT)’s largest hedge fund shareholders (check out Tepper’s top picks).
Two of The Goodyear Tire & Rubber Company (NASDAQ:GT)’s major competitors include Bridgestone and Michelin. These three companies account for about 55% of the global market. Meanwhile, its other significant competitor includes Cooper Tire & Rubber Company (NYSE:CTB) Cooper saw revenue decline 2% in 2012, thanks to lower volume, but the tire company managed to post EPS of $0.87 compared to $0.34 for the same quarter last year and well above consensus forecasts of $0.69. Part of Cooper’s big initiative is higher production related to its 51% ownership of Cooper Chengshan in China.
Cooper Tire & Rubber Company (NYSE:CTB) has a market share of only 15% in light-vehicle replacement tires in the U.S. The likes of Goodyear and Bridgestone are substantially larger and serve not only the replacement tire market, but also the original-equipment manufacturers. Cooper Tire & Rubber Company (NYSE:CTB) does appear to be rather cheap. The stock trades at just over 6 times earnings, compared to its five year P/E range of 6 times to 26 times.
Helping promote higher demand for tires will be higher production by car manufacturers, including General Motors Company (NYSE:GM)and Ford Motor Company (NYSE:F). GM is expected to see robust demand over the interim. General Motors Company (NYSE:GM) posted first-quarter EPS of $0.67 compared to the $0.93 for the same quarter last year, with the fall due to lower-than-expected North American production. However, GM has been shrinking its North American production footprint and cost structure to help boost profitability. Also, the company plans to focus on fewer brands and new production.
General Motors Company (NYSE:GM) had more hedge fund interest than Ford Motor Company (NYSE:F), with 110 hedge funds long the stock. Billionaire Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.B) has the most valuable position in the stock, worth $695 million (check out Buffett’s cheap stock picks).
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