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Saturday, August 13, 2011

Goodyear Tire and Rubber (GT)

Goodyear (sec)

I stumbled into Cooper Tire and Rubber (sec) when scanning for stocks.  That brings back very old memories from before I was ever an investor.  That leads to GT as well as Bridgestone and Michelin.

Goodyear Tire and Rubber

Looking at the very long term chart is a strange thing.  It goes back to around 1970.  The stock has see-sawed wildly between then and now but has essentially gone nowhere.  Considering that 1970s dollars were worth a whole lot more than today's dollars, the stock is seriously lower than it was back then.  Japanese tires and probably Chinese tires lately.  I remember reading Les Schwab's autobiography which covered the shift from Bridgestone to Toyo tires.

My interest in GT is to see if it's a stable company in order to take advantage of the wild swings in price that line up with economic downturns.  I'm not looking for excellence, I'm looking for survivability.


243 million shares.
They operate all over the world. 56 manufacturing plants in 22 countries.
Also rubber related chemicals.

In 2010, Titan Tire bought the rights to sell Goodyear brand farm tires in Europe, Latin America, and the US.
Expect a $270 million charge from closing the Union City, TN plant.  Was making 12 million tires per year.

Started closing a plant in France in 2009.  $107 million estimated cost.  High cost capacity.  Was making 6 million tires per year.

Goodyear, Dunlop, Kelly, Fulda,Debica, and Sava brands.  Also various house brands.
Cars, trucks, buses, aircraft, motorcycles, farm equipment, earthmoving, mining, industrial, etc.
Also retreads for trucks and aircraft and other stuff.
Mud flaps (presumably with sillouettes of reclining girls)
84% of sales are new tires.  Mostly replacement tires.

Most of the revenues are in the US and Europe.  21% Asia.

Competitors are mainly Bridgestone (日本) and Michelin (Vive la France!).
Global alliance (75%) with Sumitomo 住友 Rubber Industries (25%) for selling tires in Japan.

I notice that Asia sales are fairly flat. Someone else must be winning there.  Bridgestone?  Michelin?

Raw material costs went up 12% in 2010, not surprising.  They expect it to increase 25% to 30% in Q1 2011.  Ouch.

2,400 patents in the US.  3,700 in other countries.  License agreements.  Zillions of patents among a small number of companies tends to lock them in as an oligarchy, which is fairly good for long term business. 1,700 trademarks.

72,000 employees.  39,000 in unions.

14 million stock options.  $15.11 ave strike.

Revenues: (billions of dollars)
2006: $18
2007: $20
2008: $20
2009: $16
2010: $18
Makes sense.

Hey wait a minute!  They lose money just about every year.  The only year they made money was 2007 and that was because they sold a business.

Operating incomes in 2008, 2009, 2010 were 17.6%, 16.6%, 15.3%.

Balance sheet is weak.  Equity is almost gone. Lots of debt.
Cash flow looks weak.  Capex burns up all the operating cash flow.

This company looks bad.  I wonder if Bridgestone is any better?

Cooper Tire and Rubber

Quick look at Cooper Tire and Rubber:
Latest 10-Q
Balance sheet is way better.
Basically earned 50 cents for 6 months (not counting discontinued operations)
They actually pay a dividend.

Latest 10-K
62 million shares.
North America, UK, and PRC JV.

Revenues (billions of dollars), Earnings per diluted share
2006: $2.6, ($1.21)
2007: $2.9, $1.46
2008: $2.9, ($3.88), cost of goods sold issue (oil prices)
2009: $2.8, $1.54
2010: $3.4, $1.86

Cumulative earnings per diluted share: a 23 cent loss
International revenues are climbing substantially (1.9% in 2009, 28% in 2010), they're now half of the North American revenues.

Cash flow looks ok.  Looks like earnings match free cash flow over a three year period without anything too ridiculous.

So is CTB worth $20?  Needs more work.

Monday, August 08, 2011


While explaining the complexities involved in pondering "where did all that money go?" to someone today, I realized that there's more to it than I had thought.  The obvious answer is that it doesn't go anywhere.  The value is either there or it's not there.  Another answer is that it's like a parimutuel betting horse track.  The money comes into the markets, the brokers skim off some, and the same money walks out 3 days later when the trades all clear.  A third answer is much more ominous.

Let's say someone puts their stock up as collateral for a loan.  And let's say at first, the stock prices go way up.  So they can borrow more against it.  It's the same thing as the home equity ATM machine syndrome.  When stocks drop, the ATM machine goes in reverse and it's looking for deposits, not withdrawals.

When you apply a lot of financial leverage, then money really does appear and disappear.

When  you have a stock market bubble or housing market bubble or a tulip bubble, from what I've read, it needs large amounts of debt or it won't really have enough fuel to reach bubble status.

It's bad enough when you have a stock market bubble and you get a false wealth effect.  It's much worse when you have a housing bubble because the dollar amounts are much bigger and the impact on lives is very direct.  But what happens if you have a bubble where governments get very big and borrow massive amounts of money to keep running?  It's the large banks that get hit.  But I suspect there's a lot of collateral damage, so to speak.

Friday, August 05, 2011


Why would any sane person today loan out money for 10 years at an interest rate of less than 2.5% given the massive inflation looming and given that the borrower has the means, motive, and opportunity to cause massive inflation?

It's not a question of whether the government will default.  It's a question of whether the money you get back will be worth anything close to what you loaned out.  And you should be expecting more back, not less, given that the money is on the sidelines for 10 years.

It makes no difference whether you can sell the 10-year note in less than ten years.  The risk is still there and it seems to me that the market is seriously mispricing this stuff.

It makes no difference whether there's nothing better out there right now.  Something tells me that will change long before the 10 years are up.

UPDATE Aug 6, 2011:
I wrote that less than 24 hours before S&P lowered the US Gov rating to AA+. Lucky timing.

Thursday, August 04, 2011

Interesting Day

My 2nd largest investment right now is cash.  And it's not far behind my largest investment, NICK.  Today was a bloodbath in the markets.  Good time to own cash.

Let's see the damage:

Berkshire Hathaway is getting close to my "good deal" threshold.  If it hits that point and I don't see anything else, I might start buying more.

ValueClick is $15.42.  Was $18.78 when I last looked at it.  Will it go to $13?

POSCO is still at $102.  Not interested.

Korea Fund is at $46.55.  Getting a bit interesting.  Will it go to $40?

Container leasing companies:
CAP is $15.61, this might be cheap now.
TGH is $22.79, will it go to $16?  Not a bad deal now.
BOX is $13.27, no opinion
TAL is $27.09, will it go to $25?

ACY is $13.90, this needs to get real cheap before I'm particularly interested.  Wake me when it hits $5.

AAON is $18.41, not a bad deal.  But will it fall below $15?

FLL is $2.81, but I just don't know about this one.

Forget CCLAY.  I'd rather own the real thing, KO, which is at $65.82.  $40 would be good.

It's always tough to know what's cheap enough.  I remember back in 2002, when I could pass over things that were cheap in favor of things insanely cheap.  I remember thinking that McDonald's at $15 is probably really, really cheap.  It was!  $84 today.

Chuck E Cheese reported results today.  The stock is $35.73.  Comps are up slightly.  Food costs are up somewhat.  Operating margin is down to 7.0% from 8.1% a year earlier.  Etc.  I'm not too concerned about their quarterly results.  In fact, I'd prefer to see a real downturn in their earnings to scare investors away.  Will it hit $23 a share?

Hot Topic is at... no one really knows where they're at. $7.20. I figured they might be worth $13 a share if they turn the business around.  I'd want a price like $4 before I'd think about it.

Buckeye Technologies BKI is at $24. Bzzzzt!

It's a start.

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