Friday, April 22, 2005

Goodyear and Pilot Announce Agreement

Goodyear and Pilot Announce Agreement

Wednesday night a Morgan Stanley Broker and I had a good conversation about our favorite stocks. Phillip Morris has been one of his all time great stocks. We both reminisced about how wonderful this company has been to own when other stocks are in the tank.

Goodyear Tire is my all time favorite. I purchased the stock cheap after the 1982 recession, after the 1990 recession and again about three years ago. Each time the stock has been very good to me. It is one of the most cyclical stocks of all time. From its low after the big recessions, it produces 10 bagger results. This time, my cost is $4 and $5 per share and it has already traded above $15. It is currently trading back in the $11 area. My son in law asked me when we are going to sell it and I told him the only question we need to know is how many shares we will have when the stock hits 100.

The truth is that it is harder to know when to sell this one than when to buy. No one rings a bell at market tops. My guess is that I will sell around January 15, 2010. This stock was my families largest position for awhile but now Google and CAL have taken the lead. As the linked article shows, Goodyear is doing well. The company recently refinanced tons of old debt. The cost cuts in the union contracts were significant and this business is very levered. When it does well, it does extremely well. It seems to narrowly escape bankruptcy at the worst of each recession.

The recession pattern has lengthened. In recent times, the Fed has successfully avoided the mid cycle recessions of years gone bye. Here is the pattern for the past 35 years: 1973-74 real estate recession, 1981-82 manufacturing recession, 1990-91 real estate recession, 2001 manufacturing recession. Should the pattern hold the next recession should be a real estate recession beginning in 2010 or 2011. Oops, maybe I will sell my Goodyear in 2009, I don't want to be greedy. Catching the middle of a long run is often the wise way to be ready to prosper during a recession.