Last Week Away, Another Visit to Laconia’s HOG Dealership

Headed back to New Hampshire next week. Last years trip was a profitable one in that it enabled me to avoid making a mistake in buying Harley Davidson (HOG) shares back then.

I was considering a purchase of HOG shares when I stopped into a huge dealership in Laconia, NH last August. It is either Laconia or Meredith, I’m not sure where the border actually lies…

I wrote after that trip:
“One thing immediately struck me. Evey single bike in the store, almost 100 had the same tag on it “Priced Below MSRP”.

I casually asked a salesperson, “What is going on, why is everything on sale”? He replied “can’t move ’em and the new models are coming out”. HMMMM

When I asked why he though they were not selling he replied that most people had been upgrading the last few years with two things, house money (home equity) or Harley financing which is now getting harder to get and much more expensive. He said that because of this people are either sticking with the bikes they have much longer and those who are buying, are buying cheaper, lower margin bikes. For instance, a bike that was selling for $10,000 last year was being offered below $8,000 yesterday. Both of these are very bad for Harley.

When I asked what would happen if he can’t move the old models when the new ones come out, he said that they will just cut back the new model orders. Even worse for Harley.

Earlier this year when shares were at $70 I recommended waiting until they reached the mid $50’s to buy. Based on my weekend visit, they may go lower still. This is a great company that makes a one of a kind product, but, people are not buying it now and that will hurt. I think we may see share prices in the $40’s before the year is out.

Be patient and you may get a fantastic buy, later… “

So I waited…and waited until January and picked up shares at $37.96 which, unless they drop again is at levels not seen since 2003. They sit at $42 and change now for a 13% return (including dividends).

The story here is not a savvy pick but a mistake avoided by doing a little extra homework and asking a few questions of folks and the middle of the situation. Had I purchased shares then I would be sitting on a 20% loss.

Harley Davidson is still a one of a kind company with a one of a kind product. They are growing almost 20% internationally and are diversifying into the sport bike market. There isn’t anything not to like.

I will visit the dealership again next week. My hope is bikes are moving and are not marked down. If that is true then my decision is whether to buy more now. If they aren’t moving and are significantly discounted, we may see another dip in shares. In that instance, I may pick up more later. Selling shares after getting them at purchase price I got is not in the cards for a very long time…….

Disclosure (“none” means no position):Long HOG

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