I can't imagine that there is a single adult in America who does not know Harley-Davidson (NYSE:HOG) motorcycles and is not familiar with the deep rumbling roar of a Harley's engines.
After suffering from lowered sales during the economic downturn, Harley looks to be back on track, with 1Q earnings released on April 25 beating estimates. The report of strong 1Q results also brought about several analyst upgrades and a nice rally in the stock price.
The stock is up 21% since a year ago, currently trading at about $47, off 12% from its 52-week high achieved right after the earnings release. Of 18 analysts, 9 recommend a Strong Buy, 4 call it a Buy, 4 advise Hold, and one ranks it Underperform.
Using my normal analyst-estimate metrics (estimate for year-end times current PE), I calculate that this stock could reach $64 by year-end 2013, potentially 36% upside.
However, several analysts have recently advised caution, with RBC noting that Harley should be bought "on weakness", and UBS commenting that dealer inventories grew despite strong 1Q sales. Another Seeking Alpha writer has also written that the "upside has been realized". Right after the earnings release, company insiders sold $3.4 million worth of company stock, over 65,000 shares. And just this week, CEO Keith Wandell exercised options on another 50,000 shares, which he promptly sold. This, after a non-market disposition a week earlier, of almost 24,000 shares. Mr. Wandell currently holds 203,413 shares of both common and restricted stock, and vested options, more than the required 200,000 shares. (Each insider is required to hold between 15,000 and 200,000 shares depending on position in the company.)
Perhaps the company insiders are selling for diversity or for tax reasons, or perhaps they are simply taking profits on some shares they have held for a while. I am not recommending that people short this stock. Remember, the market can remain irrational longer than you can remain solvent. But please, if you own this stock, take some precautions in case of a precipitous decline. Set a stop-loss at perhaps 20% below the 52-week high, or employ an option strategy to mitigate losses (I am not an options pro, so I am not recommending anything specifically.)
NOTE: This article was originally published on May 10, but was pulled due to a factual error in the article. Sentiment still holds. The stock price has fallen 8% to approximately $47 since it was written, and several other outlets have written about the insider sales.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.