Cooper Tire & Rubber (CTB-N)

(A Past Top Pick on May 2, 2017, Down 26%) They've always been sensitive to rubber prices, so their margins are being squeezed. He's watching this closely. They report April 30 and look for any signs of recovery. It's on a short leash.

Hold CIBC (CM-T) or Cooper Tire & Rubber (CTB-N) in TFSA? CIBC for constant dividend growth and those dividends will compound without getting taxed.

This has an interesting trajectory right now. It’s been a very volatile stock. Their recent earnings were a beat. He has some pretty cautious perspectives on OEMs, but the parts have held in OK. The chart shows a lot of volatility, and that doesn’t check his box. It’s in a subsector that he is comfortable with, but the volatility is too much. There are safer places to be.

(His theme today is economically sensitive stocks, and ones that have disappointed lately.) This has done well over the years. They are in the replacement tire business. Tire volumes are expected to grow 4% annually for the foreseeable future. Recent earnings were disappointing, but it was well understood that rubber prices had risen. When that happens, costs of goods rise and margins shrink. One shouldn’t take a quarterly view of that. This is trading at 9X earnings. Dividend yield of 1.1%. (Analysts’ price target is $48.)

Seasonally it does well mid-March until this time of each year. There will be other opportunities. Mid Oct until end of year is the next period.

In the replacement tire business so are not selling tires to car manufacturers, but to garages, etc. They were involved for a while in a takeover bid that didn’t pan out. Not a great business really. Earnings should be fairly stable for the next couple of years, but there is not enough upside for him.

(A Top Pick Jan 10/13. Down 13.8%.) Had attempted to buy/merge with Apollo and that fell apart. This was an all cash deal, no regulatory issues. Still thinks this is a good company.

Close at $24.69 and he has a model price of $30.28, a 23% upside. He would wait for it to reach the $23 level. 1.7% yield. Likes the automotive space.

Manufactures tires for the aftermarket business. An incredibly cyclical company. Not a brilliant company. A competitive company in a brutal business. You need to buy it when it is not doing well and wildly out of favour.

A $35 offer came in from Apollo tire. All cash. Both board approved it and there were no competition issues. Some of the union negotiations that needed to be completed did not complete and they are in court. If the deal comes to pass he will tender his stock otherwise he is happy to own it. Thinks it is miss-priced here. Their competition is up 30% and they aren’t.

Primarily in the replacement tire business, as opposed to an original equipment manufacturer. They don’t have the debt levels or unfunded pension liabilities that Goodyear Tire (GT-Q) has. Good multiple at around 8-9 times. Expect they will earn about $3 a share this year. The worry would be that they are subject to raw material costs but currently rubber costs have come down. Good place to be.

Mostly in the replacement tire business. As the American car gets older and older, that sort of plays into this company. Average US car is 11 years old. Input costs (rubber) have been falling over the last several months. Yield of 1.59%.