Goodyear Tire & Rubber Co.'s (GT) stock has meandered of late, but I'm nevertheless reiterating my buy rating for the company, first recommended on May 5, 2009 at a price of $13.30. Here's why.

Institutional investors sold GT after the company reported a 15% reduction in Q3 revenue and the view from here argues the selling was overdone. Goodyear will benefit from tire demand growth in 2010.

Further, Goodyear demonstrated confidence in the likelihood of that growth by increasing tire prices by up to 6%, to recover higher raw material costs, effective December 1. The First Call FY2009/FY2010 EPS estimates for GT are a loss of $1.12 and a profit of 78 cents. That FY2010 EPS estimate will likely prove to be low.

Also, look for GT to benefit from the used-car maintenance trend. With more Americans not in a financial position to buy a new car, they're holding on to their used cars longer. But tire replacement is not an option but a requirement, which bodes well for GT.

Technically, despite the recent sell-off, Goodyear's stock chart remains in an uptrend, hence this is a classic buy on pull-back opportunity. GT will likely trade above in $20 in 2010.

Stock Analysis: Goodyear Tire and Rubber Co. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in GT now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your GT position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $6.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.


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