by Will Ashworth | February 26, 2014 10:52 am
If you’ve watched any of the events in Sochi the last two weeks you’ve no doubt seen many logo shots depicting the brand names of clothing sponsors for the U.S. Olympic team. Nike (NKE), Ralph Lauren (RL), Columbia Sportswear (COLM) … the list goes on.
From this trio alone you’d have achieved an annualized total return over the past five years of 35% — 14 percentage points higher than the S&P 500. While all three sell more than just winter-related products, this time of year generates a lot of revenue for them, but by no means are they the only options when it comes to winter stocks to buy.
Read on, and I’ll breakdown the three medal winners and runners-up.
I couldn’t resist this pick, given the brutal winter many parts of the U.S. and Canada have experienced this year. Douglas Dynamics (PLOW) is the leading manufacturer of snowplows for light trucks in North America, and one of the best winter stocks to buy.
The people you see clearing snow from parking lots around town are probably using a Western, Fisher or Blizzard snowplow to get the job done. According to the company presentation, it has more than 500,000 of these bad boys in use across the country and currently controls between 50% and 60% market share. With replacement every 7-9 years, investors gain a reasonably stable stream of future revenue.
You’re not going to hit a home run with PLOW stock, but its 5.4% yield makes it one of the best winter stocks to buy for generating above-average income with equity investments.
Fortress Investment Group (FIG) took Intrawest Resorts Holdings Inc. (SNOW) public on Jan. 31, selling 15.63 million shares at $12. The private equity firm took Intrawest’s biggest resort — Whistler Blackcomb Holdings (WSBHF) — public in November 2010. After selling off some resorts, it’s left with seven four-season resorts including Mt. Tremblant in Canada and Steamboat in the U.S.
Frankly, without Whistler Blackcomb, SNOW isn’t one of the best winter stocks to buy. Instead I’d go with Vail Resorts (MTN), which operates 10 resorts in six states including Vail and Beaver Creek. It doesn’t pay a huge dividend — yield of 1.2% compared to 6.6% for Whistler Blackcomb — but its long-term prognosis is good, and MTN stock has outperformed the S&P 500 over every major time period in the past 15 years.
There are three major players in the snowmobile business: Polaris Industries (PII), Arctic Cat (ACAT) and BRP Inc. (BRPIF), the parent of Ski-Doo. In my article about the best leisure-related stocks I favor ACAT stock over PII because it has been beaten down mercilessly in recent weeks as a result of a big earnings miss.
If you’ve followed these companies for any length of time, you know their stocks can be extremely volatile at times. That’s just the way it is; it’s never going to change. Both are great stocks to buy. Just remember to be buying when everyone else is selling.
However, because we’re focusing on wintry stocks I’m going to recommend BRPIF stock for the simple reason that Ski-Doo is the No. 1 snowmobile brand in the world. However, it’s not just about market share. In December, BRP delivered a 39% increase in third-quarter revenue from its seasonal products which include snowmobiles and personal water craft. On the bottom line, normalized EBITDA increased 42% year-over-year to C$119 million.
In terms of valuation, its enterprise value is 10.7 times EBITDA, smack dab in the middle between PII at 13.6 and ACAT at 7.9. If valuation and safety are of equal importance than BRPIF stock is one of the best winter stocks to buy.
If you been watched any of the freestyle skiing at the Olympics, you no doubt saw the Columbia Sportswear (COLM) logo on the American, Canadian and Russian teams.
COLM generates a majority of its revenue in the winter, which makes it an easy pick for best winter stocks to buy. The previous two winters have been very mild, seriously affecting sales growth. In 2014, COLM expects revenues to grow by as much as 17% year-over-year with 8% operating margins delivering its best operating profit in terms of dollars since 2007.
The company has a new product, TurboDown, which is a hybrid garment containing both synthetic material as well as down. TurboDown allows COLM to sell an excellent product at a very moderate price point. Forget the past two years; COLM stock is ready to get air born.
Under Armour (UA) took a lot of flak in Sochi for its Mach 39 speedskating suit which some argue has affected the US team’s ability to compete at a championship level. While it’s a direct hit to a brand that’s flying high, I don’t think it will have any long-lasting effects on its international growth plans.
Can UA hockey skates be too far off? I recently recommended UA stock over Nike (NKE) and 35 other leisure-related stocks to buy. Winter or summer, UA stock is still one of the best stocks to buy.
There was a lot of skiing on TV during the Olympics, with the American team taking its fair share of the medals. Jarden (JAH), the world’s largest sports equipment business, is first in terms of market share when it comes to skis and bindings with brands such as K2 and Marker.
In 2013, Jarden’s Outdoor Solutions business generated net sales of $2.7 billion. While that seems like a lot, it’s only 37% of the company’s overall revenue. It’s an extremely diversified company that has grown through a combination of acquisitions and organic growth.
Since Martin Franklin took control of the company in September 2001, JAH stock has returned roughly 3800% — significantly higher than the 134% return for the SPDR S&P 500 (SPY). I wouldn’t bet against him.
When it comes to the best winter stocks to buy, JAH stock stands at the top of the podium.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.
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