Winnebago And Smith & Wesson: Patriotic Companies With Long Traditions Of Manufacturing In The U.S. (Part 3)

Includes: SWHC, WGO
by: Drew Handy

Although investors typically focus on fundamentals or technical analysis when assessing investments for their portfolios, the events surrounding the 4th of July holiday provide an opportunity for investors to focus to some degree on sentimentality and a desire to support businesses that instill patriotism. Now that the fireworks have died down on the holiday, we will conclude our 3-part series on publicly traded patriotic companies in the United States.

Each in this series of 3 articles articulates an alternative method of assessing patriotism, which can be accessed through these links: The first article focused on United States based global industrial leaders that are key exporters to the world. Article 2 identified patriotic companies that are transformative global consumer brands. Article 3 today identifies patriotic firms that have chosen to manufacture in the United States rather than less expensive locales abroad.

The United States has a rich tradition of manufacturing, which lives on today in many areas. Some firms have taken manufacturing in the United States to be a chief competitive advantage by competing on the basis of quality and patriotism. The two companies below have taken significant risk by continuing to produce goods in the United States despite the availability of competitors across the world manufacturing less expensively.

Winnebago Industries (WGO) produces recreational vehicles (RVs). They have a number of brand names, including their flagship Winnebago, Itasca, Era, and Sunnybrook. The company was founded in 1958, just when the Federal Interstate Highway system was being constructed. Winnebago is headquartered in Forest City , Iowa and has a rich history of manufacturing their products in the United States, with all of their manufacturing facilities in the United States. Manufacturing for Winnebago is done at facilities in Forest City Iowa, Charles City, Iowa, and Middlebury, Indiana.

Winnebago has had a turbulent history as a public company, which is well illustrated by the price chart below.

Click to enlarge

The company traded in a tight range throughout the 1980s and 1990s before seeing a major sales surge and rising to the mid- $30's from 2004-2007. However, the economic downturn and rise in oil prices of 2008-2009 hit WGO hard, which the company still is struggling to fully recover from. Since 2009, the company share price has remained volatile, with a trading range of $8 to $15 per share. Fundamentally, WGO appears richly valued, with a trailing price-earnings ratio of 41 and a forward price-earnings ratio of 21. The company has a sterling balance sheet, with $81 million in cash and no long term debt. Operational efficiencies are a challenge, with margins of just 0.87%. However, the company is finally entering their long-anticipated demand surge in conjunction with the baby boomer demographic trend in the United States. This is likely to provide a solid floor of demand for the company going forward, and is likely the basis for the present rich valuation metrics.

Smith & Wesson (SWHC) founded in 1852, is an iconic company in the United States. Its handguns revolutionized the industry and continue to have strong sales, which are reflected in the fact that SWHC declared their highest revenue year (FY 2012) and quarter (Q1 2013) during their last financial reports made public on June 29, 2012. Investors have been well rewarded for sales gains at the company, with the share price touching a 52-week high in trading on July 3rd. Since its inception, Smith & Wesson has manufactured their guns at the factor in Springfield, MA.

From an investment perspective, Smith & Wesson has a mixed assessment. Bullish factors for the stock are strong secular demand, operational efficiencies, and an iconic brand that trades at a market capitalization of just over $500 million. However, at the current share price of $8.95, SWHC trades at 36 times trailing earnings and potentially faces political risk in the form of tighter gun control laws in the future.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.