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?
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

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.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

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

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center