Goodyear(GT), still good years to come

**jianyunli** Wed Dec 28, 2005 12:20 am

Goodyear(GT), still good years to come
This stock first caught my attention by browsing through ARLP's yahoo message board, I noticed it was said some coal companies are worrying 2006 coal production because of the shortage of big tires for trucks. DOE's website http://www.eia.doe.gov/fuelcoal.html listed shortage of tires as one of the risks for coal production beyond 2005. Search at google can easily give you more information regarding this matter.

Goodyear emerged from a financial meltdown three years ago, when its revenue off, products under investigation, canceled dividend and it has to restate past earnings report. Although failed to capitalize on Firestone's recall case, the new CEO did an amazing job of restructuring job and bring the company back to track. As it manifested in stock price, it approached $18 from $4 dollars in early 2003. That's a stunning 350% return. Some analysts downgraded stock worrying valuation problem, but from my research, good years still to come.

Tire is a cyclical business, according to one report (http://www.freedoniagroup.com/World-Rubber-And-Tire.html ), we would continue to see robust demand in 2006. Goodyear as the largest tire company, should benefit from this continued demand increase. Although the inflation pressure in 2006 and beyond, the latest shift to high margin products should give GT better positions than competitors.

1. accelerated increase of net income and cash flow (net income jumped 274% to $142 million according to latest 10-Q filing)
2. continued demand increase in both auto tires and big tires for earth moving vehicles(GT is few company can make it)
3. successful turning around plan, restructuring efforts by saving 1 billion dollars
4. Trailing PE of 9 is fairly cheap compared to industry averages.

Major risks:

Goodyear's massive debt is worth attention. Refinance to cut interests expense must be done. But as the company has 1.6 billion cash in hand and 8.7 billion total current assets and as long as it's earning improvement, I am not too worried about that.