“Dad stocks,” such Harley-Davidson, Polaris and BRP, “are the place to be,” according to BMO Capital Markets analyst Gerrick Johnson, who provided a research note to Powersports Business following his trip to the IMS in New York City over the weekend.
“We attended the show on a miserable, snowy and blustery Saturday in New York — definitely not motorcycle weather. We do not know if attendance was up or down compared with the year before, but given the weather conditions, we thought the attendance was very impressive, reinforcing our view that ‘dad stocks’ are the place to be,” Johnson reports. “… We continue to believe investors should make Harley-Davidson (HOG), Polaris (PII) and BRP (DOO) cornerstones of a ‘dad portfolio.’
“Within our toy and leisure coverage universe, all stocks represent companies that sell discretionary products that provide customers with recreational and enjoyment. The biggest difference is that the products our toy companies, such as Mattel, Hasbro, and LeapFrog, sell are generally considered defensive, low-cost and are bought by moms for their children. The products our leisure companies like Harley-Davidson, Polaris and BRP sell are generally considered cyclical, high-cost, and bought by dads, usually for themselves, but often justified as purchases for the family.
“In 2013, the ‘dad stocks,’ returning, to date, a market cap weighted average of 47% (median return of +57%) have vastly outperformed both the toy stocks (+29%) and the market (S&P +25%). Based on what we saw at the motorcycle show, as well as feedback from dealers and consumers, we expect the dad stocks to continue to outperform. The strength we are seeing is not just in motorcycles, but all the dad products we cover like off-road vehicles, motorhomes and RVs, boats and snowmobiles.”
Johnson goes on to write that “while we were fighting through the crowds at the motorcycle show, our retail contacts in the shopping districts of Manhattan saw few shoppers braving the conditions. This, we think, is a microcosm of what has been happening in the consumer world. Dads braved the snow, sleet and cold to see the latest in motorcycles, but mom was quick to throw in the towel on a day of Christmas shopping.
“Our view is that dad is out there buying mainly because he hasn’t bought anything in a long time. The motorized ‘toys’ he currently has in his garage or shed may be outdated, technologically inferior, unsafe, or simply broken down and in need of replacement. Over the last two years, dads have finally started to replace these machines, which, to many of these consumers, may be closer to needs than wants.
Higher home prices mean many mortgages are no longer underwater, and stock prices and retirement accounts are up. Unemployment is still high, but dads seem to feel more secure in the jobs they have. So dad is taking advantage. While economic factors may put dads in the mood to buy, they are pulling the trigger on buying new units because there has been a lot of great new innovation in the marketplace (particularly from the North American companies we cover). And with production levels of motorcycles (and ORVs, boats, snowmobiles and RVs) so low over the last several years, there is limited supply of quality used product, meaning most of these expenditures are going to new units.
“This is not happening in the toy side of our coverage. Mom, who buys almost 90% of the family’s toys, has been out at retail every week, clipping coupons and cutting corners for everything from groceries, to housewares, to toys. And for moms, who have been buying for the last five years, the day to day really hasn’t gotten much better. Mom is continuing to be cautious and shopping for bargains, especially now that dad has taken on a new ~$200 per month payment for his own plaything.”
Here’s Johnson’s take on the OEM booths at the NYC IMS:
- Polaris scored at the show with robust visitation to its Indian booth, though Victory looked slow.
- Harley-Davidson saw steady traffic, but did not show its new Street line of urban motorcycles.
- BRP’s booth saw the most diverse vistorship with women making up a large portion of visitors.
- We think Ducati, BMW, Triumph and Honda also saw good traffic, while Kawasaki, KTM, Aprilia and Moto Guzzi looked somewhat slow.