Brunswick: Containing My Losses

Jul.23.07 | About: Brunswick Corporation (BC)

Brunswick (NYSE:BC) is the #1 manufacturer of boats, commercial exercise equipment, and bowling and billiards equipment. The bulk of sales is from the company's boating division, so that's what drives the stock price.

Boating is a cyclical business and we are now in a downturn. BC has gotten crushed as a result. It was down over 8% Friday morning after another sorry quarter. I believe things will eventually turn, which is why I own the stock. Cylicals have upturns too.

I sold my in-the-money call LEAP position on BC Friday morning, since I am worried that the stock will drop on further weakness before recovering. Since options have a limited life and the recovery timeline is uncertain in my view, I no longer view options, even LEAPs, as the best way of expressing my investment view on BC.

If shares drop further, I will consider adding to my position by buying stock. In 2005 -- a good year -- Brunswick earned $3.90. At a multiple of 14x, that implies a stock price of $54.60, versus $30 this morning. That's not a price target or a thorough valuation, but a simple way of showing the upside.

Disclosure: Author is long BC common stock