NEW YORK—Rod Lache, a securities analyst for Deutsche Banc Alex. Brown in New York, which initiated coverage of two U.S. tire industry stocks in March, has upgraded his ratings of Goodyear and Cooper Tire &|Rubber Co. shares from "market perform" to "buy." Mr. Lache said he believes there is "upside" potential to both companies' shares—at least in the near term.
Tire price increases initiated by manufacturers this year appear likely to hold up in the marketplace—the first such instance in five years or more, Mr. Lache predicted. This should benefit tire manufacturing company stocks as a whole, he said.
The analyst said he views prospects for Goodyear's stock price as a "restructuring story" as much as anything else. "They (Goodyear management) are pulling more than $200 million out of the company's cost structure this year, and more will come out next year," he said.
Mr. Lache said he also likes Cooper stock simply because it's "so inexpensive." Many buyers obviously are concerned about the company's prospects in light of cost increases in oil-based raw materials, he said. Some also are concerned about the future profitability of the Cooper-Standard Automotive group now that auto makers have established an Internet purchasing site with the idea of shaving the costs of original equipment vehicle components and other necessary items.
"Both of these issues are significant," he said. "But I think the market has overreacted to them. That's why the stock is so cheap."
As the accompanying chart shows, Goodyear's stock was selling on May 31 for $24.88—off 11.7 percent from its year-end 1999 price of $28.19. Cooper's $12.13 price on May 31 likewise was down 21.7 percent from $15.50 on Dec. 31.
Mr. Lache's 12-month target price for Goodyear stock ranges from $35 to $40 a share, depending on how well the company executes its cost-cutting plans, he said. His target price for Cooper shares is $20 during this same period— offering the possibility of as much as a 60-percent gain if Mr. Lache's forecast proves correct.
The analyst cautioned, however, that the long-term prospects of these two stocks are less easily predicted. Other issues could arise to cloud the picture, he said.
Tire manufacturing capacity remains tight, and the present supply-vs.-demand picture is relatively favorable for the tire manufacturers. But a lot of new production capacity will soon come on stream, and customer demand for new cars is expected to taper off sometime next year.
"But for the next nine months or so, I think there's some upside (potential) to these stocks," he said.
As of June 13, among brokers rating Goodyear or Cooper shares on Internet portal Yahoo's "Finance" site, each company received one "strong buy" rating and three "moderate buy" ratings. Four brokers rated Goodyear a "hold," while three gave Cooper that rating.