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Author: cejhals Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1162  
Subject: GT and the Foolish Four. Date: 11/22/1999 3:30 PM
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I have with some concern noticed the resent discussion going on on these pages. The trust is basically whether GT stocks is a good investment for the future. The discusion basically has unfolded within the following confines:

1. The F4 as a way of choosing investments, and

2. Past stock price performance as a guide for future stock price performance.

The problem with both approaches is that they totally ignore what is actually going on at GT.

During the first nine months of 1999 GT made Operating Income in North America corresponding to 0.15% of sales - that is zero point fifteen percent! North America happens to be by far the largest of GT's markets representing 50% of total sales. In addition, this poor profitability did not happen during a time of recession, but at a time of strong economic expansion and - in particular - the strongest new car market ever!! - Why aren't anyone concerned about that?

During the same period GT's management announced the closure of its Gadsden facility due to over capacity, only later to reverse that decision due to too little capacity!! - Why aren't anyone concerned about that?

Also, during this period GT announced its joint venture with Sumitomo, this effectively is a take over by GT. At the time the Sumitomo venture was hailed by management as one which would hugely improve prospects in coming years. However, later in the year GT's management blamed poor execution of strategic decissions as excusing the fact that GT was producing very poor financial results and effectively had blown the potential in North America during very favourable economic conditions! - Why aren't anyone concerned about this?

Early this year J.P. Morgan offered very strong support to GT and its shares. However, GT's management managed to totally loose JPM's confidense, which effectively initiated the latest sharp drop in GT's share price. - Why aren'anyone concerned about that?

In a desperate effort to report results for the third quarter of this year in accordance with analysts estimates, GT's management reported results including clearly non-operating items as operating income. This only had the effect of further reducing confidense in management. - Why aren't anyone concerned about that?

GT's management appears strongly to have lost control of the business. They have hugely increased demands on management with the Sumitomo deal. However, the foundation which should support that transaction appears to be crumbling, causing ligitimate doubt about whether the potential of the Sumitomo deal can be realised by GT's present mangement. - Why aren't anyone concerned about that?

Back to the initial comment above. In the short term poor management and a stock price which reflects some concern to that effect can easily make such a stock a good prospect for inclusion in a F4 investment - unfortunately for the wrong reason. Equally, trying to gain insight into a stocks future prospect by looking at the past, if that stock is now entrusted in the hands of poor management is a useless guide.

I suggest it is much more fruitfull for investors - or prospective investors - in GT shares to consider these questions: "Is GT's management in control of its business?" Is GT's management able to exploit the company's strategic position?" If the answers to these are NO, then: "How long will it take before able management will take over responsibility for exploiting GT's potential?"
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