SO YOU WANT TO BUY A MOTORCYCLE (STOCK)?

Polaris Industries is America’s Number Two Motorcycle Manufacturer.
Snowmobile and ATV leader Brings Energy and Vision to American Motorcycle Industry Generally Engaged in Enshrining Obsolescence and American Nativism

The Author recently told two friends that he bought another motorcycle.
“What did you get, a Harley?”
“No,” the Author replied, “I got a Ducati, a high-performance motorcycle.”

IS HARLEY DAVIDSON THE “CHANNEL LOCK PLIERS” OF RIB-JOINT PLIERS[i]?

The Author could have replied, ‘No, I did not buy an overpriced, overweight recreation of a mechanical design that has been obsolete for 50 years.’ But he did not. But from the response of these two women, Harley Davidson could be becoming the “Kleenex” of facial tissues or the “Scotch Tape” of translucent general-purpose adhesive tape.

The Author thinks that in many ways, Harley Davidson is an American Icon. In fact, he thinks Harley Davidson is an apt metaphor for the American economy. Obsolete, overpriced, pathetically under performing, dream mobiles. They are absolute proof of the superiority of American marketing over American motorcycle manufacturing. But the Author digresses.

POLARIS: THE FUTURE OF AMERICAN MOTORCYCLES?

Polaris came out with a line of motorcycles called “Victory Motorcycles”, staying with sloganeering “patriotism” and American Nativist sentiments that are often invoked to steer American motorcycle buyers away from better performing and lower-priced international brands. The Victory motorcycles adopted the same V-twin design of Harley Davidson. However, Polaris has been gradually producing more appealing designs than the Moribund Manufacturer from Milwaukee (HD). In fact, at the recent Cycle World International Motorcycle Show, Polaris debuted a concept bike that is quite a concept.

The machine is depicted in the post below and is called the Vision 800. Concept bikes, like concept cars, rarely become production models. Rather, they include design and engineering concepts that the company is considering for future models. The Vision 800 is part scooter and part sportbike. The prominent nose of the bike, which makes the machine resemble Corporal Klinger, a monkfish or a tadpole, contains storage space. Instead of a manual transmission, it has something akin to an automatic. And footrests instead of foot pegs.

BIKE TO BIKE, STOCK TO STOCK

The Author has spent enough time opining on motorcycles. So now down to what this site is all about. Investments, finance and economics. So which stock should an investor buy? Polaris Industries (PII) or Harley Davidson (HDI)? The succinct answer is neither, at least right now. In fact, if you are a trader, you should have already sold them when both stocks lost technical support last summer. But in case you still own them, the Author will offer some guidance.

Both PII and HDI are in the unfavored leisure stock sector. Both stocks are trading below their long-term support lines, although PII came close to rising above the support line when it hit $54 dollars. And PII has regained some relative strength and positive momentum. For PII, support would break down if it fell to $43. Dump it if it falls to $43.

Harley Davidson, like PII, has declined in 2005. It hit $64 in March, fell to $45, and now trades around $53. It is also trading at or below its historical support line. Dump it at $44, which would be a loss of support and a two-year low.

Harley Davidson stock has been a popular stock for a good number of years and many investors have done well with a company that was bailed out by the Federal Government in the early 1980s. But the company faces major challenges in the future, challenges that it probably cannot overcome. And rational investors know this.

First, the average age of its buyer is approaching 50.[ii] It is the CBS television network of motorcycle companies. Although the bike is very popular among aging baby boomers, the machines have not caught on with younger buyers.

Second, HDI’s attempts to broaden out its buying base have not been successful. In 2001 or 2002, HDI released the V-Rod, a well-engineered modern motorcycle. The machines have not sold well. And HDI’s “sportbike” line, Buell, is also disappointing. Buell did recently release a new machine, the XB12X multi-sport “Ulysses”, a bike that has been well received by the motorcycle press. But one bike cannot rescue a line of bikes that is hobbled by the Harley Davidson Sportster engine.

So for HDI, its best financial days are probably behind it. If you have nice gains, look to take some. Polaris, with its strength in snowmobiles and ATVs, and its motorcycling future still ahead, would appear to have a brighter future. But until the charts tell us to buy, stay away from PII and HDI.

ITS IN THE WIND IN THE DESERT OF THE REAL!

IMPORANT DISCLAIMER: This weblog is offered for informational purposes only. Sources of information provided are believed to be reliable, but are not guaranteed to be complete or without error. Opinions and suggestions are provided with the understanding that readers acting on information contained herein assume all risks involved. The Author may or may not buy or sell securities discussed herein.


[i] Jell-O and Kleenex have become genericized trademarks, victims of their own success. People refer to Xerox, Jell-O, Kleenex, and Channel Lock pliers (for the gearhead) as a category of products, not the specific branded product itself. http://en.wikipedia.org/wiki/Genericized_trademark. The Author may send a copy of this post to the Harley Davidson’s trademark lawyers to see if it tweaks them.
[ii] Ducati may be facing a similar issue with its American buyers. In an interview with Pierre Terblanche, the former styling director for Ducati (and still working for Ducati), Terblanche said that the average age of an American Ducati buyer is 45. “Q&A with Pierre Terblanche”, Motorcyclist, January 2005, p. 36. That is a demographic that the Author shares. But unlike Harley Davidson, Ducati has a large European and international market-share. And while Ducati does market some bikes that draw upon its cachet of storied racing and sporting designs, it races, develops and builds modern, aggressive motorcycles. And Ducatis are well-accepted by younger buyers. However, the higher price and higher cost of ownership present an entry barrier for younger Ducati buyers.

In the late 1990s, Ducati built a limited edition 900 MHE that drew its design from earlier racing designs. And Ducati is currently marketing a line of “Sport Classics”, bikes that combine current Ducati technology with design elements from the 1970s. The bikes have been well received from the motorcycle press and the buying public. The Author’s personal favorite is the Sport 1000 that draws its design from the mid-1970s Ducati café racers.

Harley Davidson, by contrast, continues to build a 45-degree over-stroked twin cylinder air-cooled engine with external pushrods. The engines are more akin to radial-piston aircraft engines that peaked technologically early in World War II. The Harley Davidson V-twin engine became obsolete when the first British twin-cylinder Triumphs and BSAs were imported into America. And it remains so today.

Dollar for dollar, however, Japanese motorcycles represent the best overall value and best performance value. Japanese manufacturers build the best in-line four cylinder motorcycle engines in the world.