Polaris: Snowmobiles and Motorcycles

01/31/2003 12:00 am EST

Focus:

Vahan Janjigian

Editor, Bottom Line's Money Masters Stock Report

Using a quantitative screening system, the Forbes Growth Investor isolates 50 top growth stock picks from among thousands of potential candidates. A new portfolio addition by editor Vahan Janjigian is Polaris Industries, known for its snowmobiles. The stock is also a buy from Richard Young, editor of Intelligence Report, and a noted motorcycle aficionado, who focuses on the firm's recent entry into this new market. Here are their reviews.

"Polaris Industries (PII NYSE) is best known for manufacturing all terrain vehicles (ATVs) and snowmobiles," notes Vahan Janjigian, editor of the Forbes Growth Investor . "It also manufactures motorcycles and personal watercraft. Despite a lackluster economy, Polaris has been reporting strong sales and earnings growth. Q3 earnings jumped 14% from a year ago to $1.57 per share. This came primarily on the strength of ATV sales. The company's stated goal is to generate $2 billion in total sales in 2004.

"Clearly a mild winter would have a negative impact on snowmobile sales. The company tries to mitigate such an outcome by stressing pre-season sales and shifting inventories from one region to another as necessary. Fortunately, for PII, the current winter has seen a healthy amount of snowfall. Two other significant risks are product safety and regulation. Death or severe injury could result if the company's products are used in a reckless manner. Such disastrous events could make PII the target of lawsuits. Through the end of 2001, however, Polaris has paid an aggregate amount of only $8 million in product liability claims. As for regulatory concerns, the company has aggressively sought ways to design safer, quieter, and cleaner products. Overall, strong growth and a health dividend make PII an attractive new member our portfolio."

Adds Richard Young, editor of Intelligence Report , and motorcycle aficionado, "Polaris is the world leader in snowmobiles. However, it's the motorcycle sector that now interests me. However, Polaris has a powerhouse dealer network. But until now, it only had a lame motorcycle product to offer its dealers; as such, motorcycle sales accounted for only 1% of revenues last year. No more. I'm unsure how the company screwed up so badly in its initial motorcycle effort, but they did. Now management has gotten West Coast styling legend Arlen Ness into the fray. And, as they say, it's a new ballgame. I now think Polaris dealers can sell Victory Vegas cruiser and make a meaningful contribution to overall corporate earnings. With a 2% yield and a p/e of only 13, the stock offers plenty."

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