I'm Tempted to Sell Harley-Davidson Right Now

Harley-Davidson (HOG) had a rotten earnings report last week. The company earned 79 cents a share compared with 74 cents a share last year. Last year’s first quarter was impacted by the strike.

The worst part was that Harley lowered its forecast. The company now sees an earnings pullback of 15% to 20% instead of the 4% to 7% it predicted before. BusinessWeek has a good article on the challenges facing HOG. This is one I’m not happy with.

This is probably a case of where my Buy List rule of not being able to sell until the end of the year will probably help me. Honestly, I’d be tempted to sell HOG right now.

Comments

[Amidwesternneighbor]

Ok...how about more substance than just "they had a bad report"? I didn't think it was bad at all given the climate! Look at the chart. Do you really not think the slowdown and consumer lethargy is priced in yet? HOG is currently paying over 3% dividend. They've taken action to reduce costs and cut production over the course of the economic malaise. This is one I'm more than willing to wait out. I'll happily sit on the dividend for a while...because this is a strong brand, it's experiencing great foreign growth, and when the U.S. picks up again...we'll look back at anything below 40 as a phenomenal entry point!! My disclaimer: I just initiated a position.

[mallarde]

I understand your point about holding for the long term, but why are you so fixated on a 3% dividend? That just covers inflation -- barely!

[Amidwesternneighbor]

In terms of covering inflation, it's enough that even if this stock doesn't break out of its currently-narrow range, I'm at least not losing money. Beyond inflation, look at interest rates right now. Any time you get a yield above the Fed's rates, you're doing well. It's about capital preservation. Consider that when the Fed raises, it will be due to the economy picking up again. In that scenario, this yield still compares favorably, because buying in now, we still get that yield after the stock moves up...with an economic pickup, which likely means better sales of cyclicals such as Harleys. IOW, we get the benefits of "yield expansion" now, followed by retaining that with later "multiple compression" on the P/E as growth picks up again.

It's not guaranteed, certainly...but it's what I see happening to HOG. I just don't see this stock going much lower, and the dividend helps prevent such.

[Amidwesternneighbor]

Just one more thought - compare the yield on HOG to yields on other similar stocks, or to the yield of the S&P 500. 3% is not bad by either measure.

[mallarde]

With a yield that small, I suspect that it is built into the stock price and not a real factor. I bought WB, in part, because it was yielding 10% (not for long). That was a motivating factor.

I think HOG has support until some more news comes out. If housing stays this bad or gets worse, I would look at Harley going down with it.

On a more fundamental level, a lot of HOG's growth came from not rich people consuming more than they should -- like with exorbitantly expensive motorcycles. I wonder if we have seen the end of a modern "Gilded Age" -- gilded with chrome, that is.

[zimzam99]

Harley's hopes were on the V-rod, which fizzled after much hoopla. Everyone with a line of mortgage credit bought the Harley they'd dreamed of (basically the same machine they made in 1936. Only the electric starter and Peter Fonda saved their ass from the fate of Indian. After you have your hog, you realize that you need rings and valves after 10,000 miles and an overhaul after 20,000 miles, while your neighbor rides his Honda Goldwing for 10 years without service. Harley needs Johnny Depp to do an "outlaw biker" movie to promote onterest in these dinosaurs. I was a Harley mechanic in the 60's when the demographic for Harley was toughguys and cops, because only the very motivated poser could kickstart one. I always wondered what would happen when someone would start casting Harley parts in China. It happened. No need to buy parts from HD anymore. It doesn't look promising for HOG.

[Amidwesternneighbor]

Mallarde - "With a yield that small..." What? Are you kidding? Did you even do your research? Go look again for comparable yields, and the risks of the accompanying stocks. I do not want to be in the financials yet, despite those offering 5 or 6%.

As for waiting for "some more news to come out", what news? They just announced lower expectations, production cuts, and accompanying layoffs. It was a pretty transparent deal. And in the few days since the quarter, the stock is now up $1. That is not only "support"...... is a *bottom*!!

[mallarde]

Neighbor, I did not mean to overstate my point, which was just that I don't think a 3% dividend yield an investment maketh. Agreed that the dividends in financials don't justify investment there -- although if you are looking for bottoms, they could be a target.

In terms of news, I mean that I cannot see what will lift share prices for the rest of 2008. I sense that, if anything, we might see them fail to hit their new earnings targets.

mb, you are cracking me up. Funny that you say they are making parts in China. (I promise I am not just piling on.) I am a daily rider, and I ride BMWs. Since BMW pays a lot of attention to fit and finish, so do I. I saw a new Harley parked on the street and checked it out closely. I thought the chromed parts looks cheap. Are they chroming in China?

OT: China imports are a disaster. I try not to eat or use anything made in China. I will not feed my dog commercial dog food for this reason. I would never want to ride anything with (non-decorative) parts made in China.

[Amidwesternneighbor]

Mallarde...ok...I understand you now. I would agree insofar as I do not expect HOG to have its *own* reason for breaking out this year. But...it will be keyed by the general economy...consumer spending is the general malaise that has brought HOG down, not some lack of product lineup by HOG or operational deficiencies.

Further, I do agree regarding Chinese imports...I hope to high heaven that HOG doesn't go the cheap-o route on their bikes. That is part of the allure after all - a bike still made here in the U.S. is a patriotic call to a subset of Americans who are very much about retaining something of what made this country great - hard work and manufacturing prowess.

[mallarde]

Neighbor - so many, many top brands have made this mistake. I could list 'em off. I bought a mid-range ($1,000) Denon receiver recently and when I got it from UPS I was relieved to see "Made in Japan" on the back. Receivers made in China with brand names like Harmon Kardon, Sony, etc. are so cheaply made when made in China. You can feel the lack of quality. The volume knob has tons of play in it, the thing weighs nothing, etc.

I do not agree that HOG went down only because of "general malaise." As a Fed official said (I think), Harleys are the ULTIMATE discretionary item. And many Americans went deep into debt to buy them. I think they might represent a lifestyle of borrow and spend that consumers will have to give up.

This could mean that Harley will be operating in a new domestic climate for many years to come.

Now, I am starting to think that HOG could drift up if the market drifts up. My short position is tiny at the moment. Might wait until $40-plus to add.

[dozerman]

guys ... many parts are made in different countries.. i`ll give you a small list ..mexican wiring harness , brakes [brembro brakes on touring bikes ]showa shocks from korea ..buells new motor is candian owned rotax [located in germany]..motors and brakes made by companies owned by bombardier ..i wonder if they are warming there feet for a take over ..also the evo motor was designed in austraila..twin cam designed by vw - posche..let`s face it they can`t design there own motor ..i have my sell order in at my strike price of 41.00..

[mallarde]

BMW has used Austrian motors for their single-cylinder bikes. But BMWs motors are nothing but BMW designed and manufactured.

As I suspected, HOG is drifting up with the market. If they can earn $3.00 this year, they will be at a PE of about 13 here. That seems rich for a company with declining earnings, but the trend has been up. I sold short some more shares just under $40 in case it cannot pierce the $40 mark.

[dozerman]

bmw`s 650 motor is also a rotax motor ...

[bcbob]

SELL!! Just bought an '08 touring model to replace the same model in an '05 series. New model seems to vibrate more, has no passenger grab handles and a cheaper and less plush seating configuration. Most annoying however are screachy brakes that 4 trips to dealers have not been able to resolve. Called Harley's800 customer service number and got a lady named Ellen with a very non American accent followed by 'Tom' with a similar accent and finally 'Trish'. Of course these were not the peoples real names so the conversations began with a lie and went downhill from there. My biggest concern is the maturing of the Baby Boomer driver of Harley's success. At about 30mpg my cruiser is not an economy machine. To stay competative with the foreign scooters Harley will have to build smaller, lighter and of course less profitable machines. But of course if you are going to have to deal with "out sourced" customer service reps you might as well buy a non us scooter. At least you may get service reps who can read the manual and save some money too.

[jacpilmed]

I am a new shareholder. I looked into stocks that had good performance, not miraculous,( I don't believe in miracles ), and I thought this was a promising stock. I think that the gas price crunch is going to hit Americans soon, and owning a motorbike might well become a status symbol of the ecolo crowd. I see hundreds of bikers ( not Hell's Angels) making excursions in the Laurentians every weekend, clubs of bikers (some with very grey hair) and I feel very sure that biking is a sport of a lot of future,.