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Spokane, Washington  Est. May 19, 1883

Motley Fool: Good years ahead for Goodyear?

Goodyear is one of the world’s largest tire companies, with 47 manufacturing facilities in 21 countries, and about 5,200 patents globally. (Associated Press)

Goodyear Tire & Rubber (Nasdaq: GT) has been on a bumpy ride lately, but there may be plenty of good years ahead for the company. Goodyear is one of the world’s largest tire companies, with 47 manufacturing facilities in 21 countries; world-class innovation centers (including its innovation lab in Silicon Valley); and about 5,200 patents globally.

A plateauing and slowing North American light-vehicle market has pumped the brakes on Goodyear, with lower vehicle production shrinking demand for tires. And its operation in China may be affected by the COVID-19 epidemic. But that’s only part of Goodyear’s story.

After all, Goodyear still gets significant revenue through its replacement tire business – as all existing cars occasionally need new tires. Also, more and more vehicles sport wheels with diameters of 17 inches or more, which require tires that are far more profitable than those for smaller wheels. Meanwhile, if oil prices fall, so will the raw material prices for tires, boosting profit margins.

Goodyear has recently been trading at a forward price-to-earnings (P/E) ratio of about 6, which is very low, and its dividend was recently yielding a hefty 6.6%. That warrants a closer look by long-term, income-seeking investors. Weak auto markets are generally followed by stronger ones, and while you wait, Goodyear should keep paying dividends.

Ask the Fool

Q: Why hasn’t Amazon.com split its shares recently? Is it due for a split soon? – G.K., Ocala, Florida

A: The company “went public,” issuing shares on the stock market for the first time via an initial public offering, or IPO, back in May 1997. It split its stock three times soon after, splitting 2-for-1 in 1998 and 3-for-1 and 2-for-1 in 1999. In the 20-plus years since then, there have been no splits. In early March, its shares were trading around $1,954.

But the number of shares a stock has isn’t too significant on its own. Two companies may each have a market value of $50 billion, with one having 1 billion outstanding shares priced at $50 apiece, and the other having 250 million shares priced at $200 apiece. A company’s market value is far more meaningful than its number of shares. And Amazon’s market value has soared, recently topping $1 trillion.

It won’t be surprising if Amazon splits its shares in the coming years, if only to make them more affordable for average investors. If you wanted to invest $1,500 in Amazon and shares are trading for $2,000 apiece, you couldn’t afford a single share. But if, say, the company split its shares 20-for-1, shareholders would suddenly have 20 shares for every share they owned presplit, and those shares’ prices would be reduced proportionately (leaving the total value of their holdings unchanged). In such a split, shares costing $2,000 presplit would sell for about $100 post-split – and someone with $1,500 could afford to buy 15 shares.

Q: What’s the Pension Benefit Guaranty Corporation (PBGC)? – T.L., Mankato, Minnesota

A: It’s a federal agency that insures benefits in private traditional pension plans. Learn more at PBGC.gov.

My dumbest investment

My dumbest investment move was not utilizing the Roth portion of my 401(k) account earlier. A Roth 401(k) grows tax-free! That would have been a big-time win for me if I’d started investing in a Roth 401(k) with my company at 22 years old – I’m 32 now. Take advantage of the Roth option. – K.M., online

The Fool responds: You’re right that a Roth 401(k) – and its cousin, the Roth IRA – are powerful tools for retirement savings. You’re also smart to be thinking about retirement while you’re just in your 30s; many people don’t get around to that until a decade or two later, and they lose out on massive saving potential.

The longer your money has to grow, the more it can grow. Still, it’s far from too late for you. If you’re aiming to retire at, say, 62, you still have a whopping 30 years of investing and growth ahead of you.

With a Roth IRA or 401(k), you contribute money and get no upfront tax break. But if you follow the rules, you can withdraw money from the account later, tax-free. That’s especially great if you expect your tax rates to be higher in retirement.

Socking away $8,000 per year for 30 years and earning an average annual return of 8% can get you to almost $980,000. Learn more about IRAs and 401(k)s at Fool.com/retirement.