December 23, 2013

A Buying Opportunity for Cooper Tire and Rubber

This year has been about as boom and bust as you can get for Cooper Tire & Rubber (NYSE: CTB  ) shareholders, who in June were under the impression that Apollo Tyres was purchasing the company for $35 per share only to discover that the merger would not be going through as planned. Cooper has tried on two occasions to force the merger to go through via the court system, but just yesterday had its appeal thrown out by the Delaware Superior Court.
While many investors would consider Cooper Tire an off-limits investment after its failed merger with Apollo, I see its drastically reduced share price as the long-awaited green light to buy.
The primary reason Cooper Tire looks so attractive has to do with low input and rubber costs, which are allowing for better tire visibility than both Cooper and rival Goodyear Tire & Rubber have witnessed in years. In addition to lower expenses, the auto market has been incredibly strong as we just looked at via Nissan's results above. As long as new-car sales domestically continue to pace above a seasonally adjusted 16 million units and Europe's auto market remains stable, there's little reason to believe that Cooper's results won't improve.
Finally, Cooper simply looks like a deep-discount bargain on a forward-earnings basis. Cooper is currently valued at a mere seven times forward earnings and is also paying out an annual yield of roughly 2%. It's time to be greedy when others are fearful and give this tire maker another look.

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