Polaris: ATV Net

04/11/2003 12:00 am EST

Focus:

Vahan Janjigian

Editor, Bottom Line's Money Masters Stock Report

Polaris Industries (PII NYSE), is a true pioneer in outdoor recreational vehicles,” notes Sharon A. Parker’s Undiscovered Stocks.  “Originally a snowmobile maker, it now makes all-terrain vehicles (ATVs), personal watercraft, motorcycles, and accessories. Some 4 million people regularly go snowmobiling. And Polaris is #1, by far, in the world. Indeed, there are now only 4 other manufacturers.  The company is #2 in ATVs, behind Honda, but has been introducing new innovations. It now offers a unit designed for children, allowing the parents to set and change seed. It also introduced the largest and most powerful ATV in the world. The company has also just released a professional series with a target audience of construction, lawn and landscape, and equipment rental. In addition, the company has introduced its Victory line of motorcycles; last year retail sales climbed 81%.

 

“Overall, the company’s efforts are hitting on all cylinders. Fourth quarter 2002 was the firm’s 19th consecutive quarter of increased sales and earnings. Plus, 2002 was the 14th consecutive year of record earnings. The stock’s valuation measures scream ‘bargain’. Its price to earnings, price to sales, and price to cash flow ratios are all about half the industry average. Its return on equity is 41.3%, nearly twice the industry average. To top it off, the company has almost no debt, with just 7 cents of debt for each dollar. Polaris has used some of that cash to retire and repurchase 1.2 million shares last year, and the company increased its dividend; at $1.24, that’s a nice 2.7%, nearly twice money market rates. We like that the firm has a consistent record in good times and bad, and that its business diversity provides a cushion against declines in one product line. Meanwhile, just 6 analysts follow the company and the stock is trading near its 52-week low. Try to buy on pullbacks below $52 for a 12-24 month target of $65.”

 

From a technical perspective, Richard Rhodes, editor of the Rhodes Report, adds, “Although we remain bearish on the market, we still consider alternative stances to our positions and are willing to consider a possible long idea.  In that vein, we shall look towards Polaris. If the economy improves, then we would expect consumers to ‘up’ their expenditures upon these types of ‘leisure goods’ – especially in front of the spring and summer seasons. Earnings for fiscal 2003 are expected to be near $4.67, which at current levels indicates a P/E of 10.5, which is fairly decent in this type market environment. In any case, we shall keep an “alternative” viewpoint here, and thus examine this position from the long perspective.

 

“The recent decline was held by the ultra long-term 200-week moving average, and why this moving average tends to provide support is a mystery to us, but we note quite often it does in fact arrest declines. This is the case now, and we further note the bottom that formed at this moving average was a bullish ‘outside reversal week’. If prices are able to correct their rally off their lows below $45, and then turn higher, we would be interested. And finally, we do find our 20-week indicator turned higher last week from below the +8 level – an oversold condition the likes not seen many years – not since 1996, and at that time it marked the low prior to the entire bullish move – taking prices from near $18 may be the case at present, which would indicate a move to upwards of $61.”

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