The stock market is still hitting new highs daily, and finding companies that offer good value at a good price remains an increasingly difficult task. But price by itself isn't the best reason on which to base an investment decision because cheap stocks are often cheap for a reason and high-priced ones could be getting ready to go higher still.
Yet combine a good business with a good valuation and suddenly investors have a powerful winning ticket in their hands. Here's why Harley-Davidson (NYSE: HOG), Oshkosh (NYSE: OSK), and Winnebago Industries (NYSE: WGO) appear to offer not only good businesses but ridiculously cheap values as well.
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The decline of Harley-Davidson's core customer base has been well documented, leaving the big motorcycle maker with falling sales and lost market share to rival Indian Motorcycle. Harley's stock has fallen 18% so far this year and it's seen nearly a quarter of its value evaporate from its 52-week high. While that might suggest to some to find a different iron horse to ride, there are plenty of reasons Harley can roar ahead.
After all, it remains the industry leader in the U.S., where it commands nearly half the share of the market, and it owns a sizable slice globally. Although Polaris Industries (NYSE: PII) has made significant strides with the Indian Motorcycle name since rescuing it from bankruptcy in 2011, it remains in distant second place with single-digit share.
Harley-Davidson trades at less than 14 times earnings, about 12 times next year's profit estimates, and at less than 10 times the free cash flow it produces. Its production and sales of motorcycles may be down from prior years, but it still sells a lot of bikes and holds a dominant share across all demographics making it a good business at a ridiculously cheap valuation.
Truck maker Oshkosh has the opposite problem as Harley-Davidson: Its stock is soaring and trading near its all-time high as it gains new contract wins, yet the market has not yet fully valued the company.
Oshkosh surprised Wall Street with a strong earnings report that, while showing higher sales across all four of its divisions, really owed thanks to its defense side for pushing sales up 17% and profits 50% higher. It called out several recent deals with the U.S. military that factored into the big gain, but a recent win with the British military that promises to deliver $1 billion in revenue wasn't even part of the superlatives.
For all that, Oshkosh's stock is cheap. While it trades at a multiple of 22 times its earnings and 18 times next year's estimates -- not bargain-basement material on the surface -- it also goes for a fraction of its sales and just 12 times its free cash flow. This despite Wall Street still thinking Oshkosh will grow earnings at a compounded rate of almost 15% a year for the next five years.
With an administration in Washington looking to beef up the military's capabilities even further, Oshkosh might be a stock investors want to play defense with.
Recreational vehicle maker Winnebago seems to be something of a mix between Harley and Oshkosh, a company whose stock has been on a roller-coaster ride but one that had been dragged down because of operational concerns despite favorable demographic trends.
The leading RV company that is almost synonymous with its industry made a purchase last year of a towable RV maker that would extend its product line in a favorable direction. Everyone knows Winnebago's hulking suburban assault vehicles; now it would have a scaled-down product to offer as well. And that's a hugely positive development because while the mature crowd typical of Winnebago's customers prizes its motorhomes, millennials are a rising consumer segment looking for weekend experiences that a towable camper would more readily offer.
It also gives it the opportunity to go in a different direction than rival Camping World Holdings (NYSE: CWH), which also recently made an acquisition, but of bankrupt sporting goods retailer Gander Mountain that it plans to use to cross-sell to existing customers.
Despite that, Winnebago Industries trades at almost 18 times earnings and only 12 times 2018 estimates and less than 18 times its free cash flow. That's not heavily discounted by itself, but with favorable industry trends and as it goes for a fraction of its sales, the stock looks to be a steal at these levels.
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Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Polaris Industries. The Motley Fool recommends Camping World Holdings. The Motley Fool has a disclosure policy.
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