There is a trader axiom floating around Wall Street that says “never short a stock where the consumer is willing to tattoo the brand somewhere on their body,” and this held true for many years for Harley-Davidson Inc. ($HOG), as shares had great returns when all stocks bottomed in January 2009. Shares in HOG were a dangerous short sale rallying from $10 to near $80 while paying a dividend through 2014. This five year run held true for the trader axiom, as this great American brand pumped out the bikes and returns for investors.
Based in Wisconsin, Harley has manufacturing plants in Milwaukee, Tomahawk and testing areas outside Phoenix. Few know that the Tomahawk Wisconsin plant produces more windshields than any other manufacturer in the world, and they produce windshields for all brands of bikes. This sleepy vacation town north of Wausau (about 100 miles from the Canadian border) has two plants which drive the local economy – I know, because I worked there one winter to escape boredom as a part-time tech support person.
The thing I learned about Harley was the post union decertification forced on Harley by Governor Scott Walker has affected this company in ways which are coming out in the wash. I think it is finally trickling down to the bottom line for Harley, as the secure union worker making $25 per hour and loving his job was replaced by the casual employee making $14 and working long hours for bad managers. The union still exists there, but it is a shell of its former self, and nothing more than a toothless dog.
Hard Choices for Harley Reverberate in Recent Share Declines
It was a difficult decision for Harley (back a few years) when they were forced to decertify the union. The company really gave the employees little choice, as they were one step away from closing operations in Tomahawk and Milwaukee. They would have been forced to move from Wisconsin all together, so there was little leverage for the union, and subsequently the result is now coming out in the share price. Shares are down 25% YTD, and have fallen from $70 to $49 since Christmas 2014.
The stock is in danger of massive tax loss selling between now and year end, and today’s volume shows fund managers bailing with both hands trading 30 million shares today, when they normally trade about two million. Today alone, the stock is down 13%, so the dye has been cast for HOG by fund managers. I expect you will see value players start to look at the stock, but that price has a 30 number on it somewhere – so Harley is sucking some tail pipe here.
I love Harley Davidson, I love the sound of a Harley bike thundering down the road – I don’t ride, but I know many who do. I also love Tomahawk Wisconsin, and each year, 30,000 motorcycle enthusiasts show up for a four day event where they shut down the town (ala mini Sturgis) and celebrate their freewheeling ways, and it is not the Hells Angels. It is made up of doctors, lawyers, fireman and mechanics. They are men and women, young and old. They don’t drink too much, because they love their bikes and don’t want to damage them– and yes, they have tattoos on their bodies that say Harley Davidson.
The thing is – the stock is a short, even here at $49, it’s a short. And I hate that – I hate that this great American brand cannot pay good workers and still extract a margin for shareholders.
I hope it is just a blip for a few quarters. I hope for the American worker…but for now, Harley management has a large task ahead, or shares will retest the 2008 lows.
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