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Joe Kunkle

How to invest in the revival of the great outdoors: Part two

With lockdown restrictions starting to lift, it is becoming more likely that the consumer behavioral changes we’ve had to adapt to during the pandemic will remain.

One of the first places that’s seeing an easing of restrictions are the outdoors, which — for clear reasons — is a much safer environment for gatherings due to the ease of social distancing and the natural air ventilation.

In an effort to determine the best stocks to participate in the coming outdoor recreation boom, I researched the top brands and then reversed engineered them to find the publicly traded owners of them.

Here, I continue to break down the featured segments of this theme below.


The camping, biking and hiking stocks to watch

If we dive more deeply into a few of the major revenue-generating activities in the outdoor recreation market there are not a lot of pure plays.

For example, companies like Newell Brands [NWL] that own popular outdoor brands like Coleman and Marmot, also operate a lot of non-outdoor related consumer brands like Paper Mate, Sharpie, Elmer’s, Mr. Coffee, Rubbermaid, Yankee Candle, among others.

Similarly, Helen of Troy [HELE] owns the popular stainless steel water bottle brand Hydro Flask, while also operating businesses like Braun, PUR, Vicks and others.

And despite Spectrum Brands [SPB] owning the hunting brand Remington and outdoors insect repellent brand Repel as well as Home & Garden, it is not a major needle mover.

Instead, here are two better pure play names with healthier growth profiles:

Fox Factory [FOXF] is a $2.6bn maker of suspension products for mountain bikes and other outdoor vehicles. While many of its products have strong market share, the company is also expanding into new business areas like recreational vehicles (RV) and boating.

It sees room for growth in other parts of the outdoor recreation market such as in lift kits, brakes and wheels from its core suspension offering. Fox Factory also wants to target new vehicles and new geographies. The stock trades at 26.5 times earnings and 3.37 times sales. It is also seeing improving profitability.

The second pure play I would highlight is YETI Holdings [YETI], a $2.6bn leading consumer brand for outdoor enthusiasts. It has a leadership position in the coolers and drinkware markets, and is also expanding into other product categories.

YETI has been making a conscious shift to an omni-channel and direct-to-consumer approach, which has helped it achieve fast growth of 35% year-over-year.

Their product lineup has been expanding in recent years into more outdoor living equipment, which could see a boost as more people focus on investing in the home space. YETI trades at 23.3 times earnings and 2.8 times sales.


The recreational vehicle stocks to watch

The RV industry is currently in a bit of slump. While it saw a surge in unit shipments in 2016 and 2017, the industry experienced a pullback in 2018 and 2019, according to data by RVIA.

RV ownership, meanwhile, has reached its highest level on record with nine million households. Recent dealership surveys show a resurgence in demand, with similar indications from Camping World’s [CWH] recent earnings call. Online RV rental service RVshare noted RV rental bookings rose 30% year-over-year through the week commencing 11 May.



Winnebago [WGO] is my preferred RV name compared to its peers Camping World [CWH] and Thor [THO]. Winnebago has industry-leading growth, solid margins and a more conservative balance sheet with strong free cash flow.

Two other less obvious ways to play the trend in RV usage/ownership is through the supply makers. Two notable stocks in this area are Patrick Industries [PATK] and LCI Industries [LCII].

Patrick Industries also serves the marine, manufactured housing and industrial markets though RV accounts, which account for 63% of its total revenues.

The company has also been seeing steadily increasing RV content per unit. It sees an addressable market of $4bn in RV and $1.9bn in marine. Patrick currently carries a $1.23bn market cap. It trades at 15.9 times earnings, 0.55 times sales and 8.4 times free cash flow.

LCI Industries, meanwhile, is a leading supplier of highly engineered RV components, but also has exposure to the buses, trucks, trailers, boats, trains and manufactured housing markets. It also owns the truck and towing brand CURT, which has a $7.5bn addressable aftermarket.

The company has made over fifty acquisitions in the last twenty years, as it diversifies away from the RV industry though it remains its majority revenue driver. LCII has a $2.37bn market cap. The stock trades at 18 times earnings, 0.97 times sales and 15.3 times free cash flow, with a 2.74% dividend yield.

In comparison, LCI trades a bit richer than Patrick but also is the better operator and screens healthier across other key metrics.


The boating stocks to watch

The boating industry should also see strong demand this summer. However, there will be some partial negative offsets from falling consumer confidence and canceled boat shows.

There are a few boating plays like MasterCraft [MCFT], Marine Products [MPX] and Engine maker Brunswick [BC] but my preferred name is Malibu Boats [MBUU]. Malibu Boats is a leading maker of power and performance sporting boats, and has been gaining market share for years with its leading brands while also generating strong results.

The company has four key brands, including Malibu, Axis, Cobalt and Pursuit. It is number one in terms of market share position in the United States in the performance sport boat category through its Malibu and Axis brands.

Malibu Boats also has the top market share position in the United States in the 24-inch to 29-inch segment of the sterndrive category through its Cobalt brand, and is in a leading position in the fiberglass outboard fishing boat market with its Pursuit brand.

As of 2018, the three categories of outboard, sterndrive and performance sport boats represented an addressable market of $8.9bn. The performance sport boat sales are seeing strong US growth and 2018 units remain 20% below their 2006 peak.

Malibu Boats is also taking an increased focus on the $4.2bn fiberglass outboard market. It is the leader in the growing marine industry with a strong financial track record and sees opportunities for growth in International markets as well as expanding into new product lines.



There are a few smaller interesting plays in the boating space such as MarineMax [HZO], which is a retailer of recreational boats and yachts, and BRP [DOOO], which makers power sport vehicles and marine products.

However, my favourite name is Johnson Outdoor [JOUT], a $695m maker of marine electronic products, as it is not as actively traded as many of the other names. The company has a debt-free balance sheet and trades 13 times trailing earnings and 1.2 times sales.

It owns leading brands in fishing like Minn Kota and Humminbird, Diving with ScubaPro, Watercraft Recreation with Old Tow and Ocean Kayak, as well as in the camping and hiking markets with Eureka! and JetBoil. While Johnson Outdoor is relatively unknown to most investors, it is a great pure play.


The outdoor auto stocks to watch

A less obvious potential beneficiary of consumer’s shifting focus to outdoor activities is the auto travel market, as air travel is replaced by motor vehicles for closer trips.

The automotive market has many different services and products. The three main players are AutoZone [AZO], Advanced Auto [AAP] and O’Reilly Auto [ORLY].

There’s also Advanced Auto [AAP], a stock that’s seeing significant buying and that can see further margin improvement. An offshoot of this rise in demand for auto goods and services could be that it causes a rise in gasoline demand, a likely positive for refiners such as Valero [VLO].

Monro [MNRO] is a $1.95bn provider of automotive repairs and tire services that may be a beneficiary as well, considering that it has the largest chain of undercar care facilities in the US with 1,098 stores across 26 states.

Thule Group [THULEL:SS] is an intriguing International play. The company makes products for all types of vehicles including RV’s, while also having exposure to strollers and other areas. Thule is a global market leader in several product categories, such as roof racks, rooftop cargo carriers and bike racks for vehicles.


The outdoor home living stocks to watch

Lastly, another focal point for consumers will be to improve their personal outdoor living environments with budget allocations shifting from vacations to staycations.

We have seen an increase in demand for home improvement and garden products, based on the recent results from Lowe’s [LOW] and Home Depot [HD]. Renovation remains a very strong theme, as increasing expenditures couples with more time spent at home.

There are a few other retail channels to play this theme, including Wayfair [W] as a leading ecommerce retailer of home and outdoor products, and Central Garden & Pet [CENT] as a distributor of pet and garden supplies.

Tractor Supply Co [TSCO] is my preferred retail play, as it is one that has kept its doors open and seen strong sales as well as higher average ticket sales. They recently appointed a new CEO that is likely to continue a strong digital plan.

The $13bn company trades at 20.8 times earnings and 1.55 times sales, and has plenty of room for further expansion. Scotts Miracle-Gro [SMG] is also a best-in-class play in the home and garden market that has been posting very strong numbers. It has been benefitting from the legalisation of cannabis as well.

A shift to composite decking has been a strong theme for outdoor products. Fortune Brands [FBHS] capitalised on this trend when it bought Fiberon for $470m, a provider of decking, while Universal Products [UFPI] also has a composite decking segment. Trex [TREX], meanwhile, remains the category leader and best-in-class brand. It is positioned well with 34% of its home improvement spending taking place outdoors.

Pool Corp [POOL] is also a fantastic company. It is a leader in the highly fragmented niche distribution market and operates with strong organic growth as well as 60% recurring revenues. Its Americas Pool business accounts for 85% of its total business, while irrigation and landscape is 9%.

Pool Corp has posted a strong performance in the past. Its CAGR has been at 26% since 1996 compared to the S&P’s 8.3%. The company has noted that weather is the largest external factor affecting its short-term demand.

Population movements in certain areas suggest there will be an increase in pool demand in the long-term, with most of the US population increasingly moving to warmer weather. The pool and outdoor living products market is estimated to be worth $11.5bn, with wholesale distribution the primary channel to market in the industry.

Pool Corp sells a variety of pool products, with chemicals accounting for 14%, tiling at 11%, lighting at 10%, heaters at 9% and filters at 9%. It’s estimated that there were 5.3 million US in-ground pools in 2018, driving 85% of the company’s sales.

New construction of pools added 1-2% per year to the installed based, while the aging installed base is driving renovation and remodels. Pool Corp sees further growth opportunities with market share gains, new locations, targeted categories and new product technology.

That concludes my overview of what I suspect will be the likely beneficiaries from the expected shift in consumer behavior in the near-term as well as longer-term. I have taken the time to create an example ETF for this outdoor recreation theme, and if I was able to create one it could use a ticker like WILD, OREC or HIKE (see below).


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