I am in the market for a new set of tires for my car as I have gone 60,000 miles on my original Bridgestone tires. This got me to thinking more about my stock investment in Cooper Tire & Rubber (CTB). I bought CTB as a value play with a good dividend to boot. When I originally made the purchase, I was looking at a one to two year holding period.

As I look around at tires, there seems to be much more foreign competition offering very good tires. I feel the tire markets will get more competitive and see even more low cost producers getting into the market in the coming years. I still feel good about CTB in the next year or so but long term I am not sure how they will handle the increased competition of cheap foreign producers. They have increased their foreign production the past couple of years but with the increase of competitors this will mean tighter profit margins for all companies. I think the larger companies that have more money to spend on R&D and keep their costs low will perform well in the long run and I an not sure if that will be Goodyear or some of the foreign companies such Michelin or Bridgestone.

Bottom line, I have an average cost on my CTB shares of $7.50 with gain of about 40% in the past year. I look to hold this stock until early next year and then take another review of the stock to see if I still want to be in the tire business.

I found an interesting article from Moringstar about CTB, Goodyear and the tire industry. Here are some highlights.

Are Tiremakers Gaining Traction? by Joung Park
Few industries have felt the bite of the recession as acutely as tire manufacturing. However, we believe the short-term outlook for tire manufacturers is brightening given the potential release of pent-up replacement tire demand as drivers notch up more miles, drastic capacity cuts across the industry, and easing raw-material costs. Also to be considered is the proposed tariff on imported Chinese tires, which is a wild card. If approved, this tariff could have mixed effects on the U.S. tiremakers, such as Goodyear (GT) and Cooper (CTB), which we will cover in more detail shortly.

Adverse Conditions
In response to the presently dismal demand environment, tiremakers across the industry have pared capacity, with Goodyear and Cooper proving no exception.

We view this disparity as evidence that beleaguered U.S. consumers are deferring tire replacements, and we believe that this pent-up replacement-tire demand will be released in the near future, likely in 2010 and 2011. We believe this confluence of contracting supply and rebounding demand for replacement tires will provide a temporary spike in profitability for Cooper and Goodyear by raising plant-utilization rates, tightening tire availability and thereby supporting pricing. In addition, falling raw-material costs could provide an additional boost to industry bottom lines.

The Better Tire for the Road Ahead
Although we are now more bullish on the short-term outlook for both Cooper and Goodyear, we are much more inclined to bet on Goodyear over the long haul than Cooper. Goodyear boasts stronger and more diverse distribution channels than Cooper, which has traditionally relied on small independent retailers, which are slowly losing market share to larger national chains.

In addition to its distribution advantage, Goodyear is already strongly entrenched within the premium-branded tire market, which commands more attractive margins and is better protected from the onslaught of cheap imports. Cooper, on the other hand, still generates about half of its sales from private-label tires, which has steadily lost market share to cheap imports. Moreover, its branded tires are not as well-recognized as Goodyear's, which boast a strong lineup of innovative offerings. As competition intensifies within the important North American market, we believe Goodyear's advantage over Cooper in distribution channels and premium tires will shine through.

Disclosure: The Div Guy owns shares of CTB at the time of this post.