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The Goodyear Tire & Rubber Company (GT), Bridgestone Corp (ADR) (BRDCY), Continental AG (ADR) (CTTAY): Kicking The Tires

Continental AG (ADR) (OTCMKTS:CTTAY) differs from the others in that it isn’t primarily a tire company–tts revenue is fairly evenly spread out across five different business segments. Continental provides a wide range of products for users of automobiles. It provides safety with products like electronic brakes and airbag control systems. The company also produces engines and sound systems.

Being a company that derives 55% of its sales from Europe, Continental AG (ADR) (OTCMKTS:CTTAY)’s results have been hampered by the economic woes of the Euro Zone. Despite the instability of the company’s most important market, it still expects larger revenues in 2013 than in 2012. The company still has confidence it will achieve its 2012 goals for EBITDA margins, free cash flow, and sales.

Foolish final thoughts

Out of these three companies, two appear decent while the other appears to be a bad investment. Compared to its peers, The Goodyear Tire & Rubber Company (NASDAQ:GT) has an incredibly weak balance sheet and the lowest margins. Goodyear also has negative tangible book value. Those are terrible characteristics for any investment.

Bridgestone has low levels of debt, excellent margins compared with other tire makers, and a solid amount of tangible value on its balance sheet. These are tumultuous times for tire producers, and in the short term Bridgestone will undoubtedly experience setbacks. However, Bridgestone has a solid amount of tangible book value on its balance sheet and the best margins in the business.

Continental is a diversified company that provides a variety of products to the automotive industry. The company is incredibly expensive relative to the tangible value on its balance sheet, and has an unhealthy working capital deficit. Continental grew sales at a 7.8% rate over the past four years while improving margins across multiple segments. This is a high quality company that was one of Germany’s best performing stocks in 2012 for a reason.

The article Kicking The Tires originally appeared on and is written by Ryan Palmer.

Ryan Palmer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

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