So, we know the following: 1) the auto industry is expanding at a healthy rate; 2) each tire company’s stock has provided similar returns in recent years; 3) revenue is growing steadily for both and 4) EBITDA has been positive the previous 5 years, and it’s relatively stable if you exclude 2008 and 2009.
We also know that both tire companies are saddled in debt that is rated junk status from Moody’s. So which of these stocks should you buy? Or are they even worth buying?
Let’s consider what hedge funds are doing with their Goodyear Tire and Cooper Tire holdings before making a final decision. 13F filings show that, comparing 2Q 2012 to 3Q 2012, three hedge funds added Goodyear Tire to their portfolios, while one hedge fund removed Cooper Tire from its holdings. Of the 400+ hedge funds we track, aggregate Goodyear holdings rose by a little over $7 million, while Cooper Tire holdings fell by close to $11.5 million. Read how you can make money by monkeying hedge funds.
In short, both companies can offer solid returns as the auto industry continues to grow. If I had to pick one of these stocks based on the research above, I would personally prefer to have Goodyear Tire in my portfolio. While Cooper Tire offers a nice dividend yield and sports a low P/E ratio, it’s possible that they deserve a low P/E ratio. Like most things in life, you often get what you pay for, and the same is true for stocks. It is likely that the three hedge funds that added Goodyear to their portfolios last quarter feel the same way.
With a better debt rating than Cooper Tire, a less volatile stock price, and stellar brand recognition, this would be a smart way to capitalize on auto growth in 2013.
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Disclosure: I have no position in any of the stocks mentioned