2 Boring but Brilliant Stocks Investors Shouldn't Overlook

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It's fun to chat around the water cooler about the next big tech stock, but when it comes time to invest, people often overlook incredible companies because they aren't household names or exciting businesses. Boring can be brilliant. And that's why investors should stop overlooking Winnebago Industries Inc. (NYSE: WGO) and The Scotts Miracle-Gro Company (NYSE: SMG).

RV maker dips into the water

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Winnebago, headquartered in Minnesota, manufactures Class A, B, and C motorhomes, towables, specialty vehicles, and parts and services. And while the idea of recreational vehicles (RVs) might be boring to some, the RV business has been strong recently.

The company's third-quarter results sent its stock soaring by more than 12% after the news release was well-received by investors. Winnebago's towables division, thanks to its 2016 acquisition of Grand Design, continues to power its top-line growth. Revenue jumped 18% during the third quarter, to $562.3 million, easily topping analysts' estimates calling for $541 million. Gross margin increased 30 basis points to 15.2%. And net income jumped a staggering 67.5% to $32.5 million, or $1.02 per diluted share, easily topping analysts' estimates calling for $0.91 per share.

Another metric that bodes well for Winnebago is its total backlog; this increased by a healthy 36% compared to the prior year, to $193.1 million. That 36% increase looks even better when you consider that competitor Thor Industries (NYSE: THO) reported an 18% decline in its backlog during its recent quarterly conference call -- although Thor Industries offered an explanation for the reduction.

Currently, Winnebago's business is thriving: The economy is strong, baby boomers are entering retirement and traveling more, and even millennials are buying RVs now. But there's a new part to the company's future growth story: boats. Early in June, Winnebago announced it had acquired Chris-Craft, an iconic recreational-boat manufacturer. Chris-Craft has a powerful brand image dating back to 1874 and is an industry leader in quality recreational boats.

This is Winnebago's first venture into the marine market, but it does broaden the company's portfolio of products and is expected to be immediately accretive to Winnebago's fiscal 2019 earnings. Management believes synergies can be generated across the company's value chain, and that the acquisition can take advantage of intersecting RV and marine lifestyles and create a broader "outdoor" lifestyle portfolio.

Growth in marijuana

Analysts and markets tend to punish stocks because of short-term headwinds, despite a long-term bull thesis remaining intact. That's one way to sum up Scotts' 2018, up to this point, as a slow start to the lawn care season pushed investors to sell the stock, sending it down nearly 24% year to date.

Concerns about the lawn care season's slow start are already fading. Management announced that Scotts Miracle-Gro's lawn and garden products jumped 28% to a record $565 million in May, driving a near-full recovery of the company's sales decline through the first seven months of its fiscal year.

While investors hope to see Scotts' core business get back to growing at a faster clip, what makes this an intriguing long-term stock for investors is the growth in its Hawthorne Gardening subsidiary -- its business segment that holds hydroponic assets, and other products associated with growing marijuana. In fact, in April Scotts acquired Sunlight Supply, in a move that will help Hawthorne Gardening beef up its position in an accelerating hydroponics marketplace.

For context, management expects full-year company sales to check in between flat and a 2% increase, compared to the prior year, but sales in its Hawthorne segment to jump 25% to 30% for fiscal 2018, driven by the Sunlight Supply acquisition. To be fair, investors can expect this business segment to be volatile and uncertain in the short term: Recreational use of marijuana is only legal in a small number of states and Canada, but it is still illegal at the U.S. Federal level.

Scotts' Hawthorne segment formed less than four years ago and has already surged to generate roughly one-third of total sales. And it seems clear that more and more states are open to legalizing the use of marijuana, because of its potential to generate tax revenue. As that happens over time, Scotts will be in a great position, with its Hawthorne division and its acquisitions, to boost its top and bottom line via marijuana. That upside, and the growth of U.S. household formation driving demand for its core gardening products should send profits higher in the years to come. This makes the year-to-date 24% sell-off a time for savvy investors to scoop up shares of Scotts.

The next time you discuss stocks with your friends, it's unlikely you'll bring up Winnebago and Scotts Miracle-Gro. But overlooked stocks like this often thrive. And with Winnebago's dive into water products and Scotts' preparation for a surge in marijuana demand, both stocks could reward shareholders in the years ahead.

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.