Friday, January 25, 2008

I Can't Believe this Pig... err HOG was Up Today - Harley Davidson


As I wrote yesterday

Harley Davidson (HOG) has been in a tough spot and is the prototypical consumer discretionary stock that this economy will hurt but in "Fed cuts solve everything" thinking we have the past 2 days I guess it might say something people will like (but needs to be shorted on each spike)

Somehow the stock was up early today, from a quick glance the company offered guidance that was not that bad for 2008. Hah! And analysts bought it. Just like they bought the retail, financial, and restaurant guidance about 9-12 months ago. Seriously! The market never ceases to give us gifts like this. ;)

Talk about the prototypical company to short in this recessionary environment where the consumer is getting squeezed. I cannot short individual names, but there was a great opportunity to short this at $42 this morning (it's already down to $38). This is like the men's version of Coach (COH) - any spike, it should be shorted. At least for another year. I can't think of another company that better represents the excesses of credit (house ATM, over spending) we've had over the past decade.
  • Harley-Davidson Inc. says riders concerned about the economy are throttling big purchases, like the company's classic motorcycles, sending its profit down 26.3 percent in the fourth quarter.
  • Sales in the U.S. were down 14.2 percent in the quarter, the company said Friday. That outpaces the domestic heavyweight motorcycle market's fall of 9 percent.
  • CEO Jim Ziemer called the retail environment "challenging" for this year and said dealers report consumers are worried about the direction of the economy. They're holding off on larger purchases, like Harley-Davidson motorcycles, which start at $6,695 but can often cost more than $20,000 fully loaded.
  • But the company said it expects moderate growth in both earnings per share and revenue this year. (this is technically called "DREAMING")
  • Harley-Davidson's shares rose as much as 5.8 percent to $42.45 (more dreaming) in trading earlier Friday, but by the afternoon they fell $2.18, or 5.4 percent, to $37.94.

I mentioned Harley back in September [Sept 8 - More Retail Tells? Office Depot and Harley Davidson] At the time the company lowered guidance for the year, had bad results, and withdrew guidance for 2009. 35% of purchases are people in subprime category. Ding Ding, we have a winner. The stock dropped from $54 to $50 that day in Sept... still a great time to short :)

Again, I can't short any individual names in this account but in a real mutual fund this would be the prototypical short to overlay against long positions. Easy pickings.... and another opportunity today. As I've written, we are going to see very similar charts to the homebuilders in retail, restaurants, and financials - long downswings, punctuated by oversold rallies (short covering) - each of those rallies can be shorted. One day it will stop working, but not for quite a while.

No position but wish I could be short

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