I am not sure how your dog did this Fourth of July, but mine had an exceptionally tough time. The fireworks started the week before the Fourth and I am quite sure that they will continue through this weekend. Over the last several days, the Chicago-land area has seen a decent amount of rain, so I have to figure that the same impulsive people that buy and shoot fireworks might have some extra inventory.
I thought about what this means for the broader economy and how this is really an investment idea. The fact is, the volume of fireworks shot off is a barometer to the health of the overall economy. These are 100% discretionary purchases and they don’t really have a long shelf life, but that said, there were a lot of them used over the last week.
The basis for this has to be the fact that the unemployment rate is down to 4.3% and the minimum wage is rising. Most people that want jobs, have them. This leads to excess discretionary income and some people just need to be heard from, especially before, on and after the Fourth of July. But does this alter your investment philosophy?
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Just because there were a lot of fireworks in your neighborhood over the last week doesn’t mean that one or more of your neighbors is buying a boat… or does it? The whole idea of more discretionary cash allows for more leisure items to be purchased and one of those just might be a new boat.
Malibu Boats (MBUU - Free Report) is a Zacks Rank #2 (Buy) and the company has beaten the Zacks Consensus Estimate in each of the last two quarters. The stock trades at only 15x forward earnings and has a growth style score of “A.” Seasonal businesses are somewhat hard to invest in, but it is clear that business h48.as been good for this company for the entire year.
Callaway Golf Company (ELY - Free Report) is an old favorite of mine. It was in the Stocks Under $10 portfolio for a while and subscribers were able to take home a nice gain in the name after only a few months holding time. The stock is a Zacks Rank #2 (Buy) but trades at a rich multiple of 35x forward earnings. On May 4, the company posted a solid 36% positive earnings surprise, destroying the Zacks Consensus Estimate.
One might not think of guns and hunting as seasonal, but they certainly are leisure activities. By that, I mean they are not required of people (anymore) as we have grocery stores that are readily available throughout most of the lower 48.
Strum, Ruger (RGR - Free Report) is a Zacks Rank #1 (Strong Buy) and is coming off a big beat of the Zacks Consensus Estimate on May 8. The 23% positive earnings surprise helped propel the stock from the high 50’s to the mid 60’s, but has since drifted back down to the lower 60’s. The stock trades at 14x forward earnings and reports again in August.
Johnson Outdoor (JOUT - Free Report) is also a Zacks Rank #1 (Strong Buy) and has beat the Zacks Consensus Estimate in each of the last two reports. The company sells canoes and kayaks as well as other boating and outdoor equipment. With a 20x forward multiple you might get a little worried about this stock as being a bit too expensive, but I am not sure that is the case. There is a 9 cent dividend coming your way if you are a shareholder and the stock is up some 79% over the last year (20% of that has come over the last 6 months).
Leisure stocks benefit when there is full employment and rising wages. If costs can be held somewhat constant, earnings for these companies are likely to improve. Smart investors follow the money and money follows demand, right now, I see a lot of demand for discretionary items.