As the world struggles with high unemployment and the consumer continues to hold back on large purchases, not every company is seeing a slowdown. However, how about large purchases of highly discretionary goods; there is no way these companies are holding up, is there?
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Two such companies have been beating the overall market and recently hit new multi-year highs. Maybe it's due to the fact that we are now in winter and the two companies are involved in recreational vehicles that can be used in the snow. Whatever the reason, they have caught my eye and warrant more investigating.

The smaller of the two is Arctic Cat (Nasdaq:ACAT), a maker of snowmobiles and ATVs that has a market capitalization of $344 million. The stock has pulled back from a five-year high it hit in November, but is still up 28% so far in 2011. Technically, the stock is attractive and it also has the fundamentals to back it up. The PEG is an undervalued 0.75 with price-to-sales of 0.7. There is no dividend yield, but the value-technical combo makes ACAT a stock to watch.

Polaris Industries (NYSE:PII) manufactures and sells off-road and on-road vehicles, including snowmobiles, ATVs and motorcycles. The $4.13 billion market cap company is also valued well with a PEG ratio of 0.95 and price-to-sales of 1.7. The stock pays a 1.4% dividend. Technically it is about 8.8% off an all-time high it set in early November; so far in 2011 PII is up an astounding 54%. The company has raised the dividend for 15 consecutive years. The chart, fundamentals and consistency of the dividend increase are all strong attributes for PII. (For related reading, see New Wheels: Lease Or Buy?)

Hogs and Hondas
Honda Motor Company
(NYSE:HMC) is a competitor to the first two companies, however it is much more of an all-encompassing company. Even though HMC makes off-road vehicles and motorcycles, the majority of its sales are derived from selling automobiles around the globe. The $57 billion company has also not had the same success as the niches companies. The stock is down 21% on the year and hit a multi-year low in late November, before bouncing the last few weeks. This is one stock I stay away from.

The $8.9 billion Harley-Davidson (NYSE:HOG) falls in the middle between the niche stocks and HMC. In 2011 the stock is up 9% and trading in the middle of a two-year range. Fundamentally the stock is attractive, with a PEG ratio of 0.94 and a dividend yield of 1.3%. Even though their motorcycles are high-end, the demand is obviously keeping up enough that the stock price outperforming the overall market. The key to buying HOG is looking for an entry on a pullback to the low $30s, which may take patience.

The Bottom Line
If you are considering buying into an economically sensitive niche sector such as recreational vehicles, the biggest risk is a recession of a massive slowdown in consumer spending. So far the stocks have been able to hold up well with minimal growth and if it starts to accelerate next year, expect them to continue outperforming the overall market.

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At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

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