To The Moon

$S&P 500(.SPX)$ lost 6% after China matched U.S. President Donald Trump’s big raise in tariffs announced last week. The drop closed the worst week since March 2020, when the pandemic ripped through the global economy. $Dow Jones(.DJI)$ plunged 2,231 points, or 5.5% and the $NASDAQ(.IXIC)$ tumbled 5.8% to pull more than 20% below its record set in December.

The best-performing concepts is Tires & Rubber stocks. Considering the different perceptions of the stock, this time TigerPicks chose $Goodyear(GT)$ to have a fundamental highlight to help users understand it better.

$Goodyear(GT)$

The Goodyear Tire & Rubber Company, together with its subsidiaries, develops, manufactures, distributes, and sells tires and related products and services worldwide. It offers various lines of tires, mining and industrial equipment under the Goodyear.

April 3rd ended up being a brutal and bloody day for the stock market. After President Donald Trump announced sweeping global tariffs, markets plunged. However, not every company in the market fared poorly. One shocking development was that shares of The Goodyear skyrocketed. At one point, they were up more than 15%. And by the end of the day, they closed up 11.7%.

Reasons to be Optimistic

There are a couple of reasons why the market responded favorably to The Goodyear Tire & Rubber Company during the day.

First and foremost, the market is probably finally recognizing the value that management's actions have brought and will bring to the company and its investors. In addition to this, the company has a large manufacturing presence here at home that should help to insulate it from foreign competition during these uncertain times. This only reinforces my previous "strong buy" rating on the stock.

In the chart, you can see the financial performance for the last three completed fiscal years

This is all great, and I am a firm believer that shares of the company are drastically undervalued. Personally, I believe that a very conservative price for shares should be around $15. And depending on how things go with the economy and the company's cost-cutting initiatives, a price well in excess of that could be possible.

Having said that, there has been a big overhang that has proven to be problematic for the company in recent years. This means that the total volume of tires sold by the company has been on the decline. The substantial decline in the Americas has been largely the result of increased competitiveness in the US when it comes to lower-priced tires and, in part, because of some weakness involving distribution changes in Latin America and economic weakness in Brazil.

Tariff-Driven Competitive Edge

The market clearly perceived the tariffs as being a net positive for The Goodyear Tire & Rubber Company. This is because the company has said in the past, including even earlier this year, that low-priced imports are taking away its market share.

This should bode well for The Goodyear Tire & Rubber Company. While the company did say in the past that it absolutely imports and exports tires, it seems as though it produces a large chunk of its tires that it sells in the U.S. here at home.

At the end of its 2024 fiscal year, it had 53 manufacturing facilities in operation globally. These are spread across at least 20 countries. In the Americas, it has 16 tire plants, four chemical plants, three tire manufacturing equipment plants, two tire retread plants, two aviation retread plants, and one mix plant. In fact, of its facilities that are dedicated solely to tire manufacturing, half of them are located here in the Americas. Eight of these tire plants are located specifically in the U.S.

This makes a great deal of sense to me when you consider how costly tires must be to ship. They're certainly not small and they're certainly not light. Producing them domestically can make a great deal of sense. However, this is not the only benefit that the company might have because of the tariff news. Over the last three years, The Goodyear Tire & Rubber Company has actually increased the number of tires that it produces for OEMs like vehicle manufacturers. That number has grown from 40.6 million units to 45.9 million. However, that still means that 120.7 million, or 72.4%, of the company’s tires last year were focused instead on the replacement market.

According to Cox Automotive, the recent tariffs that had been put in place on the automotive space will push the average price of a new vehicle that is imported into the U.S. up by $6,000. For those that are produced here, the increase will probably be around $3,000 since only 40% to 50% of all the content that goes into domestically produced cars is ultimately sourced from here at home.

However, these changes should increase the demand for used vehicles as well. Those who would buy new vehicles will also decide to keep their existing vehicles longer as a result of these price hikes. So at the end of the day, there should be an increase in demand for the firm’s replacement vehicles. Obviously, the better competitive position that the company is being put in because of the tariffs should also prove bullish.

Takeaway

The Goodyear Tire & Rubber Company offers investors an interesting opportunity. Add on top of the positive impact the company will likely have, at least in the near term, as a result of these tariffs, the fact that management continues to make improvements from a structural standpoint, and I firmly believe that the enterprise is worthy of the "strong buy" rating I have had it at recently.

Stock Price Forecast:

Here are the target price forecasts for the next 12 months from analysts.

Based on 5 Wall Street analysts offering 12 month price targets for GoodYear Tire in the last 3 months. The average price target is $12.05 with a high forecast of $14.00 and a low forecast of $10.20. The average price target represents a 24.23% change from the last price of $9.70.

Resource:

https://seekingalpha.com/article/4772999-goodyear-tire-and-rubber-company-surge-was-justified

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