Goodyear: A Dirt-Cheap Stock With Major Upside Potential

| About: Goodyear Tire (GT)

Goodyear Tire (GT) shares could be one of the best values in the auto industry today. That is saying a lot because the market is full of cheap stocks, and the auto sector is even valued lower than the market in general. Some investors seem to be overlooking positive recent developments for this leading maker of tires. This is creating what appears to be a very solid buying opportunity for longer-term investors. Here are a few reasons why Goodyear shares could be well worth buying now:

1) The price of oil and other commodities has dropped significantly in the past couple of months. Oil was trading well over $100 per barrel in 2012, but has since dropped about 20%. Since oil and other commodities are a key component in the cost of manufacturing rubber tires and transporting them, this lower input cost could result in much wider profit margins for Goodyear. The lower input costs are likely to offset much of the demand reduction due to a soft economy.

2) Some investors have been concerned about the pension liabilities at many large American companies, including Goodyear. However, this company has been successfully meeting its pension obligations and it has remained solidly profitable. Because of this, it seems that the pension concerns are overblown and more than priced into the stock. Pension funding has been an issue because of the very low interest rates, which reduces the returns for many funds. But, new Congress-approved pension stabilization legislation was signed just days ago which eases the burden on companies like Goodyear. Plus, the pension liabilities are a well-known issue, so further downside on this point is not likely.

3) Goodyear shares are at levels that already price in a tremendous amount of negative news. Just to show the extreme contrast, (AMZN) is expected to earn about $1.23 in 2012, while
Goodyear estimates are near $2 per share and yet Amazon shares trade for about $220, while Goodyear trades around $10. I'll take Goodyear at just about 5 times earnings any day. Ford Motor Company (F) is one of the only auto stocks that gets close to Goodyear's valuation, as it trades for about 7 times earnings. Look forward a couple years at Goodyear, and the price to earnings goes even lower. Estimates for 2014 are around $2.75 per share which is tough to ignore for any forward looking investor when the shares trade for just over $10 now.

4) Goodyear has a solid balance sheet with about $2.08 billion in
cash and $5.63 billion in debt. This company also has a world famous brand name "Goodyear" as well as brands like Dunlop. The company makes tires for trucks and aircraft, plus it operates approximately 1,500 service centers around the country that sell and install tires and offers other auto maintenance services. This world-class manufacturer, appears poised to return substantial gains in the long-run for buy and hold investors.

Here are some key points for Goodyear:
Current share price: $10.53
The 52 week range is $8.53 to $18.25
Earnings estimates for 2012: $1.99 per share
Earnings estimates for 2013: $2.49 per share
Annual dividend: none

Here are some key points for Ford:
Current share price: $9.30
The 52 week range is $9.05 to $13.44
Earnings estimates for 2012: $1.33 per share
Earnings estimates for 2013: $1.59 per share
Annual dividend: 20 cents per share which yields 2.1%

Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.