The idea of investing in boating stocks became mainstream back in November when General Motors (NYSE:GM) announced that it had taken a 25% stake in Pure Watercraft. This Seattle outfit makes completely electric outboard motors.
What does a company selling cars and trucks want with outboard motors? CNBC reported the following:
“Pure Watercraft motors use lithium ion batteries and replace 40- to 50-horsepower outboard motors that burn gas or diesel. Traditional fuel-powered boats contribute to environmental problems including noise pollution, smog, and water pollution that is plainly visible floating on the water in their wake. Pure’s systems are much quieter and cleaner.”
From a business perspective, this electric outboard motor startup investment allows GM to expand its electrification plans beyond automotive. But, of course, it also doesn’t hurt that the boating industry is booming.
So, if you’re looking to spend a little fun money, these seven stocks can help you do just that without losing your shirt. And if you don’t want to wander too far from your core portfolio? Buy GM stock and call it a day.
- BRP (NASDAQ:DOOO)
- Brunswick (NYSE:BC)
- Malibu Boats (NASDAQ:MBUU)
- MarineMax (NYSE:HZO)
- Johnson Outdoors (NASDAQ:JOUT)
- MasterCraft Boat Holdings (NASDAQ:MCFT)
- Vision Marine Technologies (NASDAQ:VMAR)
Boating Stocks to Buy: BRP (DOOO)
First up on this list of boating stocks, this Canadian manufacturer of snowmobiles (Sea-Doo), skimobiles (Ski-Doo) and all-terrain vehicles (Can-Am) has a history of helping North Americans enjoy the outdoors. Long-time shareholders have profited as a result.
DOOO stock has a five-year annualized total return of around 32% through Dec. 3. However, as the supply chain has put a chokehold on its business in recent weeks, its stock has retreated some. It’s down more than 17% over the past month.
Consider this decline as a buying opportunity.
BRP is committed to building out electric versions of many of its product offerings. In March, the company said it would invest 300 million CAD ($234 million) over the next five years to electrify its products. It expects to have the first electric product by sometime in 2023. By 2026, all three categories will sport electric versions of their most popular vehicles. CEO José Boisjoli said the following on the announcement:
“We have always said electrification was not a question of ‘if’ but a question of ‘when’. Today, we’re very excited to unveil more details of our plan to deliver market-shaping products that will enhance the consumer experience by offering new electric options […] We are leveraging our engineering know-how and innovation capabilities to define the best strategy for developing electric-powered products.”
Despite a supply-chain struggle, the company reported earnings per share (EPS) for the third quarter of 1.48 CAD (or $1.16). That was 15 cents CAD ahead of the analyst consensus. What’s more, DOOO expects to earn 9.36 CAD (or $7.31) for all of 2021 with 27.5% year-over-year (YOY) revenue growth at the midpoint of its guidance. All told, BRP is a well-run company.
If you were courageous enough to buy BC stock in the March 2020 correction and are still holding it, you’re up more than 250% over 20 months. That’s nothing to sneeze at.
Brunswick owns some of the biggest names in boating: Sea Ray, Boston Whaler, Crestliner, Lund and many others. It also owns Mercury Marine, the leading producer of outboard and inboard boating engines. One out of every two boats in the U.S. sports a Mercury engine.
In 2006, the company generated 57% of its revenue from boats (Page 10). Today, that’s down to 27%. Now, it generates the biggest chunk of its earnings from selling OEM (original equipment manufacturer) and aftermarket parts and engines. As a result, Brunswick is much better equipped to handle a downturn in a particular brand.
In 2022, Brunswick expects revenues of close to $6 billion, earnings per share of approximately $8.50 at the midpoint of its guidance and $450 million in free cash flow (FCF) (Page 23). For those concerned about dividends and share repurchases, the company also plans to pay out 20% to 25% of its earnings as dividends in 2021, along with share repurchases of $100 million at the midpoint of its guidance.
Financially, this pick of the boating stocks has a rock-solid balance sheet. Its net debt is $411 million, or just 6% or so of its current market capitalization.
Boating Stocks to Buy: Malibu Boats (MBUU)
Like many of the boating stocks on this list, the past five years have been good to MBUU shareholders. This pick has a five-year annualized total return of around 30%. Year-to-date (YTD), it’s also up nearly 12%. That’s about half the performance of the entire U.S. market.
Now’s a good time to consider an investment.
This manufacturer of performance sport boats reported its Q1 fiscal 2022 results at the beginning of November. They were lights-out good. On the top line, revenues grew more than 40% to $253.5 million. On the bottom line, net income also jumped nearly 27% to $27.9 million. Sales were higher due to increased prices and volumes from both existing brands and its acquisition of Maverick Boat Group.
In fact, Malibu Boats’ average price per unit sold during the quarter increased 13% to $125,246. While its gross margin and net margin were lower in Q1 compared to last year, the added volume more than made up for that slight reduction in profitability.
For fiscal 2022 entirely, the company expects sales growth of 22.5% at the midpoint of its guidance, with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) margins of 19.5%.
Based on its trailing 12-month FCF of $83.1 million, Malibu has an FCF margin of 8.3% and an FCF yield of 5.7%. That makes MBUU stock a GARP (growth at a reasonable price) name.
Next up on this list of boating stocks is HZO stock. When you want to sell a lot of boats, MarineMax is the place you go to get that done. It is one of the largest retailers of new and used recreational boats, with 77 dealerships and 31 marinas. It also manufactures boats under the Cruisers Yachts name and provides services to super-yachts around the world.
On Nov. 3, the company added Intrepid Powerboats to the mix, a manufacturer of powerboats with $60 million in annual revenue for the past 12 months. In addition, the company continues to seek strategic acquisitions to add value for its core customers.
Over the past six years, Malibu has grown its revenues by 16% annually, from $751 million in 2016 to $2.06 billion in 2021. Approximately 71% of those sales were for new boats. Used boats sales account for another 11%, while service, parts, finance and brokerage revenue account for the remainder.
Fiscal 2021 was a solid year for MarineMax with roughly 37% sales growth. Same-store sales rose by 13% with acquisitions adding the rest. Meanwhile, net income doubled to $155 million. Finally, FCF grew nearly 21% to $350 million.
HZO stock isn’t cheap. It has an FCF yield of 3.1% and a trailing price-to-sales (P/S) ratio of 0.57 times, slightly higher than its five-year average of 0.43 times. But often, you have to pay more for quality. No doubt, HZO is top-shelf in the boating business.
Boating Stocks to Buy: Johnson Outdoors (JOUT)
You probably wouldn’t consider Johnson Outdoors to be one of the boating stocks, but I’ve included it on this list because it’s an excellent family-controlled business that delivers long-term. In the past 10 years, it has had an annualized total return of around 20%, more than 400 basis points higher than the entire U.S. market.
So, the boat connection here? It has to do with Johnson Outdoors’ Old Town and Ocean Kayak brands, which manufacture and sell canoes, kayaks and related accessories and apparel. In 2020, this part of the business generated $41.9 million in revenue, accounting for just 7% of its $594.2 million in annual revenue.
JOUT makes most of its money from serving the fishing crowd. Its fishing business, which includes fishing motors and fish finders, accounted for around 76% of its fiscal 2020 sales.
What’s impressive about this business in recent years is that it has had steady growth. This past year, sales increased 37% from $433.7 million in 2016. But Johnson Outdoors’ operating margin over the past four years has more than doubled over that period as well, from 5.3% in 2016 to 12%.
So, even when this company doesn’t have a home-run year in terms of sales, profits keep moving higher.
The Johnson family — of S.C. Johnson & Son fame — controls and owns a majority of JOUT stock. Helen Johnson-Leipold is CEO of the company — and has been since 1999. Really, about the only negative thing that I can come up with for this company is that it seems to lack diversity in its board of directors.
MasterCraft Boat Holdings (MCFT)
Boating stocks performed well in 2020. However, like many of the names on this list, 2021 has been a bit of a letdown for shareholders. Over the past year, MCFT stock has returned about 26%. Further, the stock is up about 11% YTD, about half the entire U.S. market.
That said, the boating market still looks strong and should stay strong in the years to come.
Having been in business since 1968, MasterCraft’s best years may still be ahead of it. In Q1 fiscal 2022, the company delivered its most profitable quarter ever. For the period, sales grew nearly 39% to a record $144 million. Meanwhile, its adjusted net income per share was 67 cents, also a company record and up nearly 16%. The company’s four powerboat brands are MasterCraft (roughly 63% of sales), NauticStar, Crest and Aviara.
Despite an excellent quarter, it’s estimated that dealers are short by 2,500 units on an annual basis. The company expects that it won’t get to “optimal” inventory levels until fiscal 2024.
Still, with business strong, the company raised its 2022 guidance. It now projects approximately 20% YOY sales growth with adjusted EPS growth of 25% (Page 6).
In the trailing 12 months ended Q1 2022, MasterCraft’s FCF is $18.2 million. However, the first quarter is its slowest quarter. For all of fiscal 2021, FCF came to $40.7 million. That gives MCFT an FCF yield of 7.77%. I consider anything above 8% to be value territory.
Boating Stocks to Buy: Vision Marine Technologies (VMAR)
Last up on this list of boating stocks is VMAR stock. To a certain extent, all the companies on this list will go electric in the next three to five years, including Johnson Outdoors and its fishing motors. But this company may still be ahead of the curve.
Vision Marine Technologies is a micro-cap stock I had never heard of before. That’s unusual, because I tend to follow leisure stocks like a hawk. So, who is Vision Marine?
This Quebec-based company designs, develops and manufactures electric outboard engines and electric boats. It went public in November 2020, selling 2.8 million shares at $10 a share. The company says this about its flagship electric motor:
“The E-Motion 180E is the most technically advanced electric outboard motor on the market today […] [and] is world’s first 180hp outboard motor designed with a complete propulsion package.”
Until Vision Marine announced that it was partnering with Linamar (OTCMKTS:LIMAF), it didn’t have much to sell except a lot of promise. But Linamar — a large Canadian auto parts supplier — brings a ton of credibility to the table. COO Patrick Bobby said the following about the partnership:
“Linamar and its McLaren Engineering division now provide Vision Marine with a world-class, full-service Tier 1 supply partner […] We look forward to working closely with the Linamar and McLaren Engineering teams as we continue to advance scaled commercialization of our proprietary E-Motion™ technology.”
Until now, all of Vision Marine’s revenue has come from the sale of boats, parts and parts maintenance — 2.42 million CAD ($1.88 million) in fiscal 2020. But the Linamar announcement allows it to bring the E-Motion 180E to market.
Stay tuned for more information on this one. VMAR stock is by far the most speculative of the seven stocks I’ve mentioned on this list. Govern yourself accordingly.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.