The sweet spot is the mid-40s to early 50s. And with the Baby Boomers — the largest and wealthiest generation in history — now largely aged out of this key demographic bracket, Harley has a serious problem.
Generation X — my generation — is not nearly large enough to pick up the slack, and Generation Y (aka “the Millennials” or “Echo Boomers”) are decades away from being in the demographic sweet spot for Harley … and this assumes they take to riding like their dads did. The number of American men aged 40-49 is set to decline through the early 2020s and won’t reach its old 2010 peak until 2035 (see Figure 2).
CNN Money reported on this as far back as 2010, and demographic strategist Harry Dent — my old boss — has used Harley as a case study for decades.
Harley-Davidson management is not stupid. It understands the issues the company faces, and HOG’s leaders have gone so far as to address it with a dedicated page on their Investor Relations site: Harley-Davidson Demographics.
Stop and think about that for a minute. Have you ever seen a company dedicate prime website real estate to the demographics of their customer base? I haven’t. But then, few companies face the severe demographic issues that Harley does.
The company has aggressively expanded its marketing efforts to attract younger men, non-Caucasian men, and women, to modest success. Per the demographic site, management writes:
“In 2012, U.S. sales of new Harley-Davidson motorcycles to our ‘outreach’ customers — young adults 18-34, women, African-Americans and Hispanics — grew overall at more than twice the rate as sales to our traditional U.S. customer base of Caucasian men, ages 35-plus.”
But realistically, there is no replacing white Baby Boomer men. And this means a very rough decade ahead for Harley-Davidson stock holders.
Under the right set of circumstances — strong financial health, large barriers to entry, good dividend growth and share buybacks — stocks in no-growth industries can make better investments than those in high-growth industries.
But for this to be the case, the stock has to be priced appropriately. Big Tobacco has had a great decade-long run because it started out cheap and paid a monster dividend. HOG, in contrast, trades at a slight premium to the market and yields only 1.3%.
Harley-Davidson stock might be a good buy … eventually. But given the demographic headwinds it faces, it’s not cheap enough for serious consideration at this time.
An intrepid investor might even consider HOG as a short.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long DDAIF. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar, but also which stocks will deliver the highest returns. This series starts Nov. 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.