The Outdoor Living & Recreation theme remains resilient, with the travel industry still disrupted by the pandemic and consumers shifting expenditure to local forms of travel while also investing in their homes.
A strong US housing market with climbing prices also directly correlates to consumers’ willingness to invest more in their homes through renovation and remodeling projects. A low mortgage rate environment is also conducive to this.
On 22 January, the National Association of Realtors released data for December showing that existing home sales rose to 6.76 million, a 22% increase year-over-year and a fourteen-year high.
The momentum in the housing markets looks set to continue in 2021, with strong demand fueled by record-low interest rates and the work from home theme. These factors are driving people out of cities to new suburban and rural locations, where inventory remains very limited.
While the winter weather in Northern USA will likely constrain activity near-term, the upcoming spring and summer selling season could be very strong, unleashing a wave of travel as vaccine numbers rise and restrictions are lifted further.
I predict this will allow my JK OutdoorLiving Signature Sharebasket — available to trade exclusively on CMC Markets —to continue providing strong returns for investors.
It has been a very strong start to 2021 for this basket, with 27 of the 29 components positive over the last 12 months, and 15 of them up 10% or more YTD. One of the top gainers has been Flir Systems [FLIR] which received an $8bn buyout from Teledyne [TDY]. Boating retailer Marine Max [HZO] has been a top performer, up 23.98% for the year to date, with boating inventory remaining depleted and setting up for another strong order season.
Polaris [PII] shares have gained nearly 25% YTD as a leading outdoor adventure name, and likely benefitting from a shift in focus towards the massive potential in the electrification of power sport vehicles. Generac [GNRC] shares have reached record highs as a name seeing strong demand for home standby generators with people spending more time at home. Generac also has a lot of growth potential in alternative energy storage.
Trex [TREX] has continued to reach new highs as composite decking replaces wood and a strong housing environment supports upgrade projects as well as increased interest in spending more time investing in an outdoor living space. In the recreational vehicle (RV) group, Winnebago [WGO] released earnings in mid-December well ahead of consensus expectations and Michael Happe, CEO of Winnebago, commented on demand in 2021 following a vaccine rollout.
“I personally believe that 2020 was only the first wave of new customer interest in the outdoors that you'll see, and you'll see another wave in 2021. Families certainly flocked to the outdoors in 2020 because of the safety that they desired [and] because of the lack of other activities that they could invest in,” Happe said.
“I personally believe that 2020 was only the first wave of new customer interest in the outdoors that you'll see, and you'll see another wave in 2021” - Michael Happe, CEO of Winnebago
“But we were seeing increases in interest before the pandemic and in multiple customer segments, younger buyers, more diverse buyers, people using our products for different work or use cases. We've talked about work from anywhere. We simply believe that there is enough net positive interest in RVs and candidly boating that, even as vaccinations unfold across the country, there will continue to be retail momentum in the market for some time to come.”
Meanwhile, Christopher Metz, CEO of Vista Outdoor [VSTO], noted on its earnings call in early November that the acceleration of remote work and migration away from cities continues to be a positive influence for the outdoor recreation industry.
As we look towards a future return to normalcy, the outdoor recreation lifestyle will continue to gain momentum due to several demographic shifts and a renewed focus on physical and mental health that is enhanced by outdoor recreation. Further, consumers will continue to invest in their home sanctuaries as a place to spend more time both for leisure activities and for work.
Masonite [DOOR], a leading maker of exterior doors, recently noted: “As the world continues to grapple with the new normal, we believe the need for sanctuary spaces has increased and the home will remain a winner in this crisis going forward.”
Generac on its latest earnings call, said: “The extreme level of power outages, combined with the continuation of the home as a sanctuary trend led to unprecedented levels of demand for home standby generators during the quarter that was broadly based across the entire US. We are aggressively ramping production levels for home standby generators, and there is a substantial backlog for these products that continues to grow during the fourth quarter”.
Trex highlighted the thesis well on its last earnings call: “Outdoor living has long represented, one of the fastest-growing categories within the repair and remodel sector. In our view, COVID-19 is providing a tailwind for an already strong category. It has brought the usability, comfort and enjoyment of the home to the forefront of consumers' minds.”
“Outdoor living has long represented, one of the fastest-growing categories within the repair and remodel sector. In our view, COVID-19 is providing a tailwind for an already strong category. It has brought the usability, comfort and enjoyment of the home to the forefront of consumers' minds” - statement from Trex
The themes driving the JK OutdoorLiving Signature Sharebasket are sustainable and longer-term secular trends that accelerated due to the pandemic but are also set to continue moving forward.