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American icon or not, Harley-Davidson Inc. (NYSE: HOG) is foundering.
The motorcycle behemoth's stock price is now just half of what it was 12 years ago. And this is not a "buy the dip" scenario. Sadly, there isn't much hope for Harley's stock price.
Some investors were excited recently by mildly positive forward guidance in the company's September earnings report. But even with that, earnings per share is only projected to rise 3.9% over the next three years.
That's nothing to write home about.
Oh sure, there's the new LiveWire electric motorcycle Harley-Davidson just unveiled. But between its limited, 110-mile charging range and its $30,000 price tag, it manages to turn off both older and younger demographics.
More to the point, this 115-year-old company is facing some serious competition. And one company in particular is a much better place to put your money than Harley-Davidson stock.
We're talking about a company whose motorcycle brand – also one of the most famous in the world – is beating the industry average retail growth by 15%.
And that's just one part of its vehicle lineup. This company's innovative on-road and off-road vehicles are appealing not just to younger riders – which Harley has struggled to attract – but to people across a wide variety of demographics.
This company has also watched its stock price fall recently – more than 40% since last June.
But the difference is in the fundamentals.
This firm has steadily grown sales and earnings – plus it's coming off 10 straight earnings beats. Unlike Harley, the numbers overwhelmingly suggest this stock is significantly undervalued.
It's understandable to lament the decline of a legendary brand. But if you want your portfolio to thrive in this new era – and maybe ease your woes – you'll want to stay far, far away from Harley-Davidson and pick up your shares of this competitor.
As it happens, you'll be participating in the revival of another great American brand in the process…
While Harley Loses Customers, Here's the Company Picking Them Up
In August 2013, Polaris Industries Inc. (NYSE: PII) began selling its reboot of an iconic brand even older than Harley: Indian Motorcycles, which were first made in Springfield, Mass., in 1901.
After several failed attempts by other companies to revive the Indian brand, the effort by Polaris has been surprisingly successful. As mentioned, it's beating the rest of the industry by 15% in retail growth in 2017.
Then again, it's not surprising when you consider the quality and economy that Polaris brings to its whole lineup of vehicles.
That includes everything from snowmobiles and all-terrain vehicles to custom warehouse vehicles and even pontoons. And as Money Morning Chief Investment Strategist Keith Fitz-Gerald says, many of these vehicles are "offered at far lower price points and, dare I say it, far higher quality with far better engineering than Harley."
Polaris's AIXAM brand of electric cars, for example, can be driven around cities in France without a driver's license, for drivers starting at 14 years old. Not only do they produce no carbon emissions, but nearly 100% of the vehicle components are recyclable.
You will need a license, though, if you want to drive one of Polaris's futuristic Slingshot models.
You might have seen one of these three-wheeled, Batmobile-looking roadsters zipping around your area. Basem Wasef of AutoBlog noted that the Slingshot turns heads even in upscale parts of Los Angeles, where people are used to eye-catching vehicles.
Wasef added that driving one of them is "unfiltered fun."
Then there are off-road vehicles like the Sportsman XP 1000, which is straddled like a motorcycle but is steady through even the toughest terrains, whether in the forest, the mountains, or swamplands.
All these vehicles are highly affordable for commuters and joyriders. But for those who just want to take one of Polaris' many vehicles out for the occasional adventure, the company has just the thing.
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Polaris Adventures was launched in 2017 and has grown to over 60 locations across the United States. Customers can start in Las Vegas and take a four-day tour to the Grand Canyon and back. Or they can trek through the trails of the Adirondacks or along the coast of Maui, among many other options.
Just over a year in, Polaris Adventures is already delivering more than 25,000 experiences annually.
Not every segment of Polaris's business is this much fun. But whether it's vehicles for warehouses, hotels, and university campuses or aftermarket parts for off-road Jeeps and trucks, the company has been firing on all cylinders.
A look at its numbers reveals what a great buy this stock is…
Now Is the Time to Buy PII
After peaking around $130 in June, shares of PII slid to just over $70 by the end of 2018.
However, the stock is already showing signs of bouncing back: It's up to $81.70 at the time of writing.
And there's plenty of reason to think that uptrend will continue.
Sales are up 35% in the last two years, and according to FactSet are projected to rise another 10% in 2019.
Earnings per share (EPS) for the third quarter of 2018 was up 27% from a year earlier, and EPS for the year is expected to finish up 35%.
Again, this is a company coming off 10 straight earnings beats, so don't be surprised if Polaris beats those expectations.
Plus, PII offers a yield of 2.94% – three and a half times the industry average.
But particularly when we look at the valuation metrics, we can see what a mistake the market made by letting the share price drop so low.
Polaris's forward price/earnings (P/E) ratio of 11.7 comes in at a 30% discount compared to the rest of the industry. The trailing P/E ratio comes in at a 40% discount.
The price/earnings-to-growth ratio for the next 12 months of 0.78 is also 40% lower than the industry average, as is PII's price-to-cash-flow ratio. And price-to-sales is 60% below average.
Whatever metric you look at, it's clear that the market has missed Polaris's value.
As Harley-Davidson continues to struggle, Polaris is the company you'll want to ride to big profits over the next few years.
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About the Author
Stephen Mack has been writing about economics and finance since 2011. He contributed material for the best-selling books Aftershock and The Aftershock Investor. He lives in Baltimore, Maryland.