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Ludwig says tire pricing may continue to drop

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According to Northcoast Research Holdings LLC, Cooper Tire & Rubber Co. and Goodyear Tire & Rubber Co. are gaining traction from their business strategies. The investment and research firm has given their respective stocks "Buy" ratings.

He also says tire manufacturers reduced their prices in the third quarter, and may continue to do so (see below).

Here is a quick look at Northcoast Research Managing Director Saul Ludwig's "investment thesis" on each company.

Cooper Tire & Rubber Co.

Opening statement: "Cooper Tire has now gained share in the U.S. for four consecutive quarters, and its momentum is not expected to abate."

2Q 2012 results: Cooper Tire & Rubber Co. posted net income of nearly $52 million on net sales of $1 billion for its second quarter ended June 30, 2012. "What was especially noteworthy about its 15% volume growth in 2Q 2012 was that it occurred in an environment in which dealers have been destocking inventories in anticipation of lower prices."

Conclusion: "In short, we believe that Cooper is now positioned for several years of earnings progress, although the rate of growth will not be linear."

Goodyear Tire & Rubber Co.

Opening statement: "Goodyear is focused on specific target markets, and in doing so, has been very successful in getting paid well for the products it brings to market.

2Q 2012 results: Goodyear posted net income of $103 million on net sales of nearly $5.2 billion for its second quarter ended June 30, 2012. "A wild card (in Northcoast's positive expectations for Goodyear in 2013) is Goodyear’s ability to rekindle dealer enthusiasm and to avoid further share degradation."

Conclusion: "In summary, we believe 2013 will be a year of EPS (earnings per share) growth for Goodyear."

Tire pricing has come down in the third quarter, says Ludwig.

"According to what we hear from trade sources, Cooper -- and all manufacturers -- lowered prices during 3Q 2012 as raw material costs have come down. Also, with the Chinese tariff set to come off.. there may well be further price cuts on value segment tires."

Earlier this month, Ludwig announced he was beginning to ease into retirement. To read his personal comments, click here.

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