The warm weather is here. That means it's time to enjoy the great outdoors - to swim, to travel and, for some, to play some serious golf. But is now the time to swing into golf-related stocks?
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Let's take a look at some of the big names.
Fortune Brands (NYSE:FO): The Illinois-based company is perhaps best known for its spirit brands including Jim Beam and Canadian Club. But Fortune also sports brands that just about any golfer would recognize - Titleist and Pinnacle.
In the company's Q1 results that were released on Friday, excluding items, it earned 30 cents per share, or 8 cents better than expectations. But there was even bigger news in the company's press release. It stated that the company has "reaffirmed our full-year earnings target for diluted EPS before charges/gains to be in the range of $2.00-2.50." According to Thomson Financial Networks, Fortune's earnings guidance appears to be in line with the $2.25 that analysts are expecting for 2009. The company's consistency and its ability to surpass earnings expectations will be viewed in a positive light by both retail investors and analysts.
The other big attention-grabbing item is Fortune's dividend cut. In an April 28 press release, the company stated that its board okayed a dividend cut to 19 cents per quarter, down from 44 cents. Why is this good news? Because the company thinks it'll save more than $100 million a year as a result of reducing its dividend payouts. In todays, economic environment, a dividend cut can be a prudent move, especially if the company uses the savings to make an accretive acquisition. (Use these seven steps to discover a takeover before the rest of the market catches on in Pinpoint Takeovers First.)
Callaway Golf (NYSE:ELY): The California-based company makes clubs and balls and generally is one of the first public companies that comes to mind when the word "golf" is mentioned. Despite its name recognition, the company's first quarter results weren't so hot.
In the period ended March 31, Callaway earned an adjusted 12 cents per share, which was in line with expectations. However, in spite of the in-line earnings, Callaway is expected to earn a measly 3 cents per share this year and a lowly 64 cents per share in 2010. That's not a bad expected growth rate to be sure, but keep in mind that the company trades at about $8.44. In other words, the company's price-to-expected earnings basis is not super attractive.
Sometimes when a company's stock takes a big hit, insiders jump in as a sign of confidence that they think better days lie ahead. With that in mind, Callaway's stock is off nearly 40% over the last 52 weeks and little action has occurred on the buy side lately. Perhaps insiders have not yet found a window, but some buying would go a long way toward garnering investor attention.
Long-term, this stock could make a comeback when the economy rebounds. Earnings upward of $1 per share, like in 2008, would lead to the stock trading markedly higher, perhaps in the teens.
Nike (NYSE:NKE): This company sells bags, balls and footwear. Furthermore, Nike is an entity with an excellent brand that pro athletes and weekend warriors love and will continue to love well into the future.
However, at about 14.6x the current year's estimate of $3.76, the stock is fairly valued and not a bargain. However, insiders have been remarkably quiet in that they haven't been aggressively buying stock in the open market as of late, even though the stock is still well off its 52-week high.
The Wal-Mart (NYSE:WMT) Variable
Because the economy is still in a fragile state, I'm betting that many golfers will purchase their equipment at discounters such as Wal-Mart. Although it isn't typically associated with golf, Wal-Mart sells an array of golf paraphernalia including balls by Nike, Titleist and Callaway. Furthermore, its stock has been pretty resilient in the face of the economic slowdown, off only about 13% over the last 52 weeks, while the S&P 500 is off more than 37%.
While one may think that the warmer weather and prime golf season make it a good time to dabble in golf-related stocks, I am not a big bull on the near-term outlook for the group. Of the stocks mentioned above, however, I favor Fortune Brands. (Learn more in our Stock Picking Tutorial.)