The recreational vehicle (RV) industry was one of the few industries that prospered during the pandemic. With airlines and cruises not being particularly safe and viable travel options then, pandemic-weary Americans started looking for ways to venture out responsibly and turned to RVs.

RVs emerged as a rare travel winner in 2020 and 2021. But the recent economic slowdown is adversely impacting several industries and this time, the RV space has not been an exception. Demand and shipments of RVs are starting to slide. As recessionary worries loom large, it appears that the RV boom is nearing its end. Despite the uncertain scenario, two stocks — Cavco Industries (CVCO Quick QuoteCVCO - Free Report) and Patrick Industries (PATK Quick QuotePATK - Free Report) — could be attractive bets if you wish to stay invested in this space. But before delving into the stocks, let’s discuss the recent RV shipments numbers and outlook for 2022 and 2023.

Sales Have Peaked Out, Road Ahead to be Bumpy

Pent-up wanderlust, after being cooped up for months, had breathed a new life into the RV industry in 2020. Americans experienced the much-needed freedom and fun with RV vacays while traveling responsibly. RV shipments in 2020 totaled 430,412 units, up 6% year over year, on par with the third-best annual shipment on record.

Despite the widespread vaccination drive in 2021, RV holidays still had their days in the sun. The demand for RVs held strong as people began enjoying an active outdoor lifestyle along with friends and family. Millennials and the zoomers’ zeal for off-the-grid-living boosted the RV culture. In 2021, RV shipments hit an all-time high of 600,240 wholesale shipments, surpassing the 2017 record of 504,599 units.

While the RV industry managed to navigate through the COVID-induced supply chain snarls, shortage of parts and components, a tough labor market and logistic challenges, it looks like the near-term uncertain economic environment has put brakes on the momentum.

Year to date, the RV industry has lost 25.7% of its value, underperforming the S&P 500’s 15.4% decline.

Image Source: Zacks Investment Research

Two weeks back, the RV Industry Association released the July 2022 shipments numbers. RV wholesale shipments declined 33.4% year over year to 29,647 units in July. The shipments also contracted from June’s 44,793 units, which again marked an 11.7% decrease year on year. So, what’s impeding the unprecedented public demand for RVs now?

As we know, the RV market is highly consumer cyclic and dependent on business cycles and economic conditions. Recession fears triggered by sky-high inflation and rising interest rates have started to weigh on the industry. Considering the Fed’s resolute stance to tame inflation, another 75-bps hike is around the corner.v Sky high inflation is increasing the cost of manufacturing RVs. While some companies are undertaking smart pricing actions to pass the rising costs of raw materials and other components to customers, these efforts might soon not be enough.

Higher interest rates translate to increasing cost of financing and the question is whether customers would be keen on taking a high-interest rate debt to finance their next RV purchase, especially when the economic scenario is so uncertain. Fears of a recession are resulting in a drop in demand and sales volume as the RV space relies heavily on consumers' affordability. 

Per the latest RV Roadsigns forecast, RV shipments for 2022 are envisioned to be between 487,300 and 510,300 units, down from the prior projection of 537,800 and 561,900 units. The revised forecast marks a 16.9% year-over-year decline at the mid-point of the guided range. For 2023, another 16% year-over-year drop is predicted. Shipments in 2023 are anticipated expected to range from 409,000 to 429,000 units. The gloomy outlook has been attributed to a weakening economic backdrop. This is creating pressure on consumer budgets and they are gradually being prompted to reduce or put off such discretionary expenses.

2 Stocks Standing Tall Despite the Odds

Cavco Industries: Cavco is one of the largest producers of manufactured homes in the United States and a leading producer of park model RVs, vacation cabins, and systems-built commercial structures. There is an added focus on energy efficiency through passive solar orientation, the utilization of renewable materials, high indoor air quality through specially designed ventilation systems and optimum use of space.

CVCO currently sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of B. The Zacks Consensus Estimate for the company’s fiscal 2023 sales and earnings implies year-over-year growth of 41.4% and 12.7%, respectively. The consensus mark for the current fiscal year EPS has moved up 29.2% over the past 60 days. Over the trailing four quarters, Cavco surpassed earnings estimates on all occasions, the average surprise being 50%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Patrick Industries: Patrick is a major manufacturer of component products and distributor of building products and materials for the RV, Manufactured Housing and Marine industries. The firm’s continued efforts toleverage investments in technology, human capital and automation bode well. Strategic acquisitions and expansion into new geographic regions are also likely to aid growth.

PATK currently carries a Zacks Rank #2 (Buy) and has a VGM Score of A. The Zacks Consensus Estimate for the company’s 2022 sales and earnings implies year-over-year growth of 24.5% and 38%, respectively. The consensus mark for current-year EPS has moved up 26 cents over the past 60 days. Over the trailing four quarters, Patrick surpassed earnings estimates on all occasions, the average surprise being 39%.