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Buy Stocks or Hit the Road? RVs Provide a Clue

Determining whether to buy or sell a stock isn’t easy. Sometimes, it’s wisest to delay your decision, a course of action often referred to as “punting.”

Take the recreational vehicle (RV) group. Right now, this industry provides an instructive case study on whether to buy, sell or punt. The situation provides insights into how you can cope with current market uncertainty.

This group of stocks, which includes leading RV manufacturers Thor (NYSE: THO) and Winnebago Industries (NYSE: WGO), presents a conundrum. The stocks are cheap but the risks are high.

Most investors view the RV industry as cyclical. Like many high-ticket purchases, such as boats or homes, RV expenditures tend to follow a predictable cycle. They peak in low-interest rate eras. Cheap financing is helpful when considering the purchase of a $35,000 vacation home on wheels.

The cycle also relies on wear and tear and replacement timing. A few years after a burst of new RV purchases, the second wave of buyers often seeks out new, used inventory. Once that inventory is depleted, potential buyers migrate to the new market.

Stocks traditionally followed this boom and bust market. Gas prices, which tend to rise with a stronger economy, usually correlate with higher interest rates. Following these two markers would guide investors to reasonably accurate entry and exit points for the group.

RV sales start lining up…

However, a few years ago the pace of buyers felt different. Manufacturers of mobile homes started talking about the second wave of demand. Units sold grew to a level unexpected by most in the market.

Industry experts tied the boom to a new younger demographic lured by the hippie lifestyle of living on the road. Others pinned it to a renewed focus on spending on experiences versus accumulating physical possessions.

Regardless of the explanation, RV unit sales marched higher than predicted. Shipments rose 17% in 2017 to a level double where they were in 2011, the prior high. The Recreational Vehicle Industry Association (RVIA) noted that 137,000 RVs shipped from wholesalers in the first quarter. This unit number is up 13.4% versus the first quarter last year.

Knowing this remarkable jump in data, you might assume the stocks are on fire.

You would be completely wrong. Year to date, Thor Industries is down 32%. Winnebago Industries is down a similar amount. Both of these stocks almost tripled in the two years ending December 2017.

The numbers reported by these companies have been robust and quite acceptable to most Wall Street analysts. And yet there are enough cracks in the story to keep me on the sidelines.

I was an early bull on this group. Three RV related stocks were in my Profit Catalyst Alert portfolio over a year ago. RV component suppliers Patrick Industries (NSDQ: PATK) and LCI Industries (NSDQ: LCII) (nee Drew Industries- DW) and RV retailer Camping World (NSDQ: CWH) all produced 35%-46% gains for subscribers who bought the stocks.

I was early buying them but early selling them as well. After I sold them, each one traded higher but have all now round-tripped. Only Patrick is above my recommended sale price.

So what to do? Despite the fact that estimates are higher than when I sold the stocks and the prices of the stocks lower, I worry that inventory at retailers is too high and that any unprecedented secular move is over.

Sometimes the best move in a stock is to do nothing. Buying is risky at this point in the cycle. Selling short seems tricky based on the low valuations. Punting and finding a better home for my capital is the best move.

P.S. When it comes to picking the right spots, my colleague Ari Charney is a miracle worker. He proposes groundbreaking investment strategies that generate steady gains even when stocks aren’t moving much. Kind of like driving your RV in the fast lane when the stock market is stuck in a traffic jam! But his techniques work in all kinds of markets, up or down. Click here to learn more.


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Andy (Vegas)

Andy

I’d like to add another “experience” – could the RV be the new California real estate? https://goo.gl/images/P2CHJH

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