Global warming may be irrefutable, but don’t tell that to my fellow Minnesota natives in the northern half of the state! This weekend alone, those hardy souls endured another blizzard with up to 2 feet of snow–on top of what has already been a horrible spring.
Aside from the obvious inconvenience, the extra long winter weather is perfect weather for those who like to play in the snow. Could that mean sales of snowmobiles, despite the economic slowdown, may be better than many expect?
Maybe, but then why are shares of Arctic Cat (ACAT), one of the nation’s largest manufacturers of ATVs and Snowmobiles getting absolutely crushed?
Obviously, worry over the coming recession led speculators to dump shares of so called big ticket discretionary goods-makers like ACAT. As a result, shares of ACAT have dropped over 60% over the past 12 months.
According to our own Richard Young, editor of Richard C. Young’s Intelligence Report, such a state creates an opportunity for investors to capitalize on companies that trade for a discount to book value. This simple approach has led to significant outperformance as compared to the S&P 500 over the long haul.
Pulling the Trigger
The trick of course is pulling the trigger. Most companies that trade for discounts to book value are extremely out of favor. They are trading at depressed levels for a reason.
Typically, there is some event that puts a dark cloud on future prospects. Headlines sensationalize the situation, and investors run for cover. It tends to be a self-fulfilling prophecy type deal and usually goes too far to the downside.
Think about it for a moment. It is quite difficult to kill a company. For the most part, there are very few public companies that actually go bankrupt. Thus, when a stock starts selling off, the astute will view the action as an opportunity.
Their protection is the assets on the books of the company. That’s why studying book value is so important.
Investors who acquire shares at a discount to book value then only need to wait patiently for conditions to change for the better in order to realize superior returns.In the case of ACAT, we have a stock that now trades for 75% of book value. That is a significant discount by any measure, and represents the lowest valuation for ACAT since going public in 1990.
Time to Rev the Engines?
The company has minimal debt and a long history of success in the snowmobile and ATV markets. With the selling, ACAT’s dividend now stands at a whopping 4%. Even if the dividend is cut in half, investors still get paid to wait for a turnaround.
The selling in ACAT has been way overdone. The popularity of its products continues to grow. More importantly, fear of a deep decline in discretionary spending is unfounded.
In fact, many are wondering if we are indeed in a recession at all. At worst it appears that the slowdown will be short lived. If you blink, you just might miss the recovery.
That is why buying these beaten- down stocks makes a ton of sense. It does take courage, but doing so can have its rewards.
ACAT may deserve to trade for a lower valuation, but does not deserve to be trading for less than book value. These assets have value and the beauty of capitalism is that eventually growth prevails.
I would trust that management will be able to generate profits from these assets making ACAT a strong buy in my opinion.
The next 12 months will be momentous! Count on it! ACAT is only one of the turnaround stocks Dick Young is banking on! Try his Intelligence Report for a full six months at our risk. If you’re not 100% satisfied, if you’re not making healthy investment returns on our advice or would like to cancel for any reason just call us during your first six months and we’ll refund every penny of your subscription! Sign-up today!
