For any investors still making changes and adjustments to their 2021 portfolio, here’s a recovery story to beat all recovery stories for you. Shares of the Goodyear Tire & Rubber Company (NASDAQ: GT
) are up almost 200% since March and have kicked off the new year in style already. Friday’s 7% pop
put them at fresh post-COVID highs and some of the Wall Street heavies are starting to row in behind them.
There’s one small caveat though, don’t look at the longer term chart if you have a weak stomach. If you do, you’ll see that shares are still effectively trading at the same price they were at in 1973 when Nixon was President, having already popped a good bit off the $5 level that they sank to last year. The stock has made a somewhat alarming habit of falling down towards $5 a share about once every ten years in the almost half century and eight presidents since, but this kind of adds to the allure of their recovery story.
On Friday, KeyBanc Capital Markets took the brave step and upgraded Goodyear shares to an Overweight rating from Sector Weight. Analyst James Picariello is expecting the company to top volume expectations this coming year and for margins to expand as a result. He gave shares a fresh price target of $14 which suggests upside of close to 30%, even from Friday’s close.
Considering Goodyear’s shares are down about 70% in the past three years, even with last year’s run, this is a fairly bullish move and will certainly raise a few eyebrows. The Ohio headquartered tire manufacturer has been plagued by long-term pains such as declining growth, weakening margins, and poor investments. In tandem with this they’ve been unable to shed a reputation for substandard quality, high costs of manufacturing, and so have seen their brand suffer as a result.
The only thing is though, they’ve been here before and came out each time stronger. It’s unfortunate that their fortunes are evidently so cyclical, but the fact is this repeating behavior also opens up some appealing opportunities for investors looking to take a punt. If we don’t count the current rally from the $5 mark, shares have traded down there five times in the past fifty odd years. One only has to look at their one to two year performance after each instance to get a sense of the opportunity in play right now. We’re talking multi month runs that returned 130%, 250%, 500%, 600%, and 800% to investors who were happy to take on the extra bit of risk for the reward.
With the current bounce already well underway, there’s less risk for investors getting involved now than when shares were literally at the bottom, closer to $4, back in March. Since then, management has also been able to deliver some surprises to the upside with recent earnings reports and have said they’re expecting global demand to recover much quicker than expected. On top of this, there’s a juicy 5.6% dividend yield to reward investors for their patience as the recovery story continues to build steam.
Shares are still about a 40% move away from getting back to pre-COVID levels but at their current pace are on track to do it in time for the one year anniversary of last year’s crash. With KeyBanc having taken the big step of being the first to upgrade shares in a long time, don’t be surprised if they’re joined by a few more from the sell-side in the coming weeks.
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Every year, analysts issue approximately 4,200 distinct recommendations for retail companies. Analysts may not always get their "buy" ratings right, but it's worth taking a hard look when several analysts from different brokerages and research firms are giving "strong-buy" and "buy" ratings to the same retailer.
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