HOG & PHG

Updates continued:

Harley Davidson HOG-- as expected, the share price volatility remains high as the short and intermediate term economic view's gloom dominates the headlines. HOG's management in the meantime has made some tangible headway including negotiating a partial tariff reduction on export to the growing middle class demand for bikes in India and settling with the North American unions contract demands without the usual animosity and negative press most companies get every 4 years. EPS and gross revenues remain flat to slightly negative in N.A. and are growing 20-30% yoy overseas. Inventories are being tightened up (finally). There is concern about rising defaults in the financial division; however, it only represents a small portion of HOG's revenues and management has taken steps to limit the fallout. The balance sheet is still superb (despite my previous concerns that HOG was using debt to finance large share buy backs) and the current ratio is just below 2------ definite margin of safety. At a share price of $37 it trades at a 30% discount to its Morningstar FMV. The economic moat remains wide and its long term potential is good. Gurus agree with me: 4 highly respected successful investors have recently bought very large quantities of stock for their portfolios. I plan to hold for the very long term (as I do with all wide moat stocks) and add to positions if there are dips into the low $30's and high $20's (hopefully). Read another analysis with lots of pretty graphs and stuff here.

Royal Phillips Electronics PHG-- this european giant is a play on clean, sustainable energy. The management has recently cleaned up its balance sheet with the huge amount of cash from the sale of Taiwan Semiconductor and made some carefully planned acquisitions including Respironics and Genlyte. It is now the biggest lighting company in the USA (ironic as it's a Dutch co.). Mgt is focusing on high margin products and the lucrative LED business-- many countries like Australia are banning incandescent light bulbs over the next 5 years and PHG is well positioned to profit from this. Phillips' medical division has been suffering as medicare reimbursements in the US have been squeezed by the gov't and the HMOs. It's difficult to know what the trend for this area will be when a new president and possibly a new party comes into power later this year.