Big Profits with Undervalued Goodyear Tire (NYSE: GT)…If You Buy Now

By. Tyler R. Martin

Founded in 1898, Goodyear Tire (NYSE: GT) is a truly old world company with solid roots in the American economy. Their services will not go obsolete due to technological advances (even self driving cars will need tires and repairs), and a has a trusted name rooted into generations of American motorists. Much like Coca Cola (NYSE: KO), the mantra of “my dad drank Coke so I drink Coke” can easily be applied to Goodyear Tire and so, in consequence, putting Goodyear tires on your car will continue to be a tradition as American as fathers and sons watching football on Sundays. One reason for this, is a superior product. Goodyear Tire develops and manufactures tires and related tire products for just about any conceivable wheeled vehicle (from aircraft to farm tools) and sells them on a global scale. With a large presence in South and Central America, various countries in Europe and a growing presence in Africa and the Middle East. Additionally, Goodyear Tire offers basic quality automotive repair at their numerous shops. On a personal note, I’ve brought my own car into Goodyear for new tires, an oil change and other minor repairs, on several occasions and have never had a single issue with their services.

Now to get into some of the numbers based details, they’re not as interesting, I know, but equally important to the analysis. To began with, Goodyear Tire is extremely cheap. Goodyear Tire is a mid-sized company (a bit large for my usual picks) with a market capitalization of 4.4 Billion. The price per share is currently valued by the market at 18.90 dollars a share and is not far off its 52 week low, which stands at 17.30 per share. But even more importantly, it is a full ~10 dollars off its 52 week high of 28.34. This considered, when you factor in the additional stats I’m about to present, make Goodyear Tire a substantial bargain. To start, Goodyear Tire’s p/e currently stands at 6.34x, as compared with an industry average of 18.30x. Its Price to Book ratio, which gives an excellent indication if the asset value relative to market value (meaning any number below 1 indicates a higher asset value than market price) is calculated at 0.89x compared to an industry average of 3.51x. The five year growth rate for earnings per share is a steady, however not substantial 5.25%. The dividend is 3.44% with a five year growth rate of 64% and a payout ratio of 24% of its earnings. These factors indicate Goodyear Tire’s commitment to paying its loyal investors, its insistence on increasing that payment and the genuine safety of its dividend. Goodyear Tire’s return on equity, a great gauge of management effectiveness at allocating resources, is currently a very solid 14.81%.

Analysis:

Goodyear Tire is a buy at 30, and can now be purchased at far, far cheaper. It should be considered a great value which any intelligent investor should pounce on. Effective as both a company to buy cheaply and sell after a rebound, a buy and hold for years as a dividend growth stock, or a combination of both. Goodyear Tire is a exemplary example of true value. With its commitment to dividends, and the massive room for growth of said dividend, this could very well be a company to leave to your children, whether you’re currently 21 or 71. Get in while you still can and buy in bulk.

At the time of this writing, I do not personally own shares of Goodyear Tire (NYSE: GT)

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