GOODYEAR TIRE & RUBBER CO. $27.20 (Nasdaq symbol GT; TSINetwork Rating: Extra Risk) (330-796-2122; www.goodyear.com; Shares outstanding: 248.5 million; Market cap: $6.8 billion; Dividend yield: 0.7%) has risen almost 11% since we made it our #1 pick for 2014 in our February issue. We think it will go higher.
In the quarter ended March 31, 2014, Goodyear’s sales fell 7.9%, to $4.5 billion from $4.9 billion a year earlier. Harsh winter weather hurt North American car and truck sales, cutting demand for new tires. The weather also slowed sales of replacement tires. As well, the Brazilian, Venezuelan and Australian currencies fell against the U.S. dollar, cutting the value of sales in these markets.
Earnings per share fell 17.6%, to $0.56 from $0.68. The lower sales and stronger price competition were the main reasons for the decline.
Despite the one weak quarter, Goodyear’s outlook remains strong, and it’s investing to take advantage of rising long-term demand. For example, it will now build a new tire plant in either North or South America. This facility will produce six million tires a year and help Goodyear meet rising demand for high-performance tires in both regions. The $500-million plant could start up as early as 2017.
Goodyear has also announced several moves aimed at enhancing shareholder value, including a 20.0% increase in its quarterly dividend, to $0.06 a share from $0.05, starting with the September 2014 payment. The new annual rate of $0.24 yields 0.7%. In addition, Goodyear plans to buy back up to $450 million worth of shares by the end of 2016, up from its earlier goal of $100 million.
The stock trades at just 9.7 times the $2.80 a share the company will likely earn in 2014.
Goodyear Tire & Rubber is our #1 stock pick for 2014.
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