Are rubber tires here to stay? Today as well as in the past rubber is critical to U.S. and global transportation. But are rubber company stocks good investments? In this post, we’ll examine arguments both for and against rubber companies.
Despite increased focus on renewable energy, rubber’s everyday transportation role persists. Moreover, even alternative means of transit like bicycles and scooters (popular in developing economies with growing populations) require rubber. Therefore, its market is resilient even amid a global recession.
The first tire company we’ll take a look at is The Goodyear Tire & Rubber Company (NASDAQ:GT). In brief, its margins are anemic and revenue growth non-existent. Additionally, having a solid dividend is critical to establishing passive income–which The Goodyear Tire & Rubber Company (NASDAQ:GT) lacks.
Now, let’s look at its books. Total assets to total liabilities for 2012 are about 1:1. This area needs improvement in order to adequately provide a margin of safety or when a stock is bought well below its intrinsic value. Yet despite The Goodyear Tire & Rubber Company (NASDAQ:GT)’s established and profitable brand, its metrics are less than stellar. However, its overall fundamentals are telling.
As a mature company and industry leader, The Goodyear Tire & Rubber Company (NASDAQ:GT)’s lack of product innovation is troubling. In this way, large industry leaders often become market laggards, as exemplified by companies such as Microsoft and IBM. Therefore, The Goodyear Tire & Rubber Company (NASDAQ:GT)’s growth prospects can arguably only diminish over time. For these reasons, as well as the above-mentioned stock characteristics, I think I’ll pass.
Next, we’ll examine Cooper Tire & Rubber Co (NYSE:CTB). My first observation is that the stock’s dividend and direct stock purchase plan (DSPP). This bodes well for long-term investors as it significantly reduces investment expenses by avoiding (expensive) commissions. DSPP’s also encourage long-term holding via dividend reinvestment and dollar cost averaging. Also, its margins are a little chunkier than The Goodyear Tire & Rubber Company (NASDAQ:GT)’s, weighing in at 6.25%, which clearly beats its competitors. Furthermore, earnings growth is outstanding.
Another appealing aspect of the company is its North American tire operations. This corporate division has diverse product offerings for cars, light and medium trucks, racing, and motorcycles. These products are sold to tire dealers, wholesale distributors, and retail tire / automotive chains. So given its level of product diversification and differentiation, Cooper Tire & Rubber Co (NYSE:CTB) beats Goodyear hands down.