The LONG case for HOG: "Squeal like a pig, boy!"

HOG Harley-Davidson Motorcycles

Bulls say:

1. Very strong Brand with wide economic moat
2. Extreme brand loyalty from customers (do you see Honda tattoos?)
   
3. 101 year old company with mature, seasoned and respected management. Long term track record of profits and share-holder value (see graph of stock performance v.s. S & P above)
   
4. stock price 33% off 52 week high of $75 (currently $49)
5. 2.4% dividend yield (increased twice in the past 2 quarters and 15 X in the past 10 years). Payout ratio is only 22%, suggesting that HD can easily sustain and even increase this dividend yield over time.
   
6. just completed a second $0.5 Billion stock buy back program on a $12 B total market cap
7. ROE 38% (VERY impressive) ROA 19% (good) ROIC high--> all quantitative measures of effective management.
   
8. Projected conservative 7-8% earnings growth over 2008/9, mostly due to international operations (20%+ growth this year) despite flat or decreasing North American earnings.
   
9. strong free cash flows and $400 M of cash in the bank which gives company flexibility to finance overseas growth, increase dividend yield or execute more share buy backs. CEO suggested in last conference call that management feels that the share price is "very undervalued". This may be a hint that a buy back strategy will continue.
10. new better performing products with broader appeal, particularly in Asia and Europe i.e. the VRSC and Rocker Softail. (don't tell my wife---I want a Rocker NOW!)
11. P/E ratio at historic lows 12.5 v.s. 18 for competition (both trailing and forward). PEG 1.17 (almost 50% industry norm).
    
12. Margins that have recently been squeezed but are astronomical by industry standards: gross margin = 38.4%
13. Several highly respected value Investing gurus hold HOG in their portfolios including Robert Olstein (paid $62.20/share June 2007!), Chris Davis, Tom Gayner, Ruane Cunniff, Bill Nygren and Ronald Muhlenkamp.

for another opinion see this video clip