A-Hunting We Will Go for Yield
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After their last analyst/investor day, Cabela's (NYSE: CAB) CEO Thomas Milner invited Wall Street analysts to go hunting. Picturing Wall Street analysts in camo and orange vests reminds me of the scene in Mad Men where ad guy Ken goes hunting with the GM execs and they shoot him in the eye. "You'll shoot yer eye out!" indeed.
Gun-toting analysts aside, hunting is big business and several stocks benefit. Although the number of hunters fell by 10% at the beginning of this century, 6% of Americans over 16 still hunt, whether by bow or gun. Figures on the actual number of hunters vary widely from 15 million to 45 million Americans. These numbers don't include anglers, campers, or paddlers so the total number of outdoor sportsmen (and women) is likely higher.
Plum Creek Timber offers leases for recreational hunting clubs. Some leases also allow food plots and camping. Most of the leases are in the South, the Pacific Northwest, and Great Lakes area. This is a small part of its revenue stream but it shows they are monetizing every inch of timberland.
You probably figured Plum Creek was a play on housing with all its timber and it is, but the company owns 6.4 million acres and is involved in mineral extraction, natural gas production, communication, and transportation as well as its main business of timber management.
Plum Creek is actually a REIT and so pays a generous dividend of 3.90%. The stock is up only 18.76% in the last year and trades at 6 times book at a trailing P/E of 32.50 and a forward P/E of 27.63.
Analysts are growing slightly more bullish with an upgrade by DA Davidson on June 19 to neutral. Analysts have a $51 median price target.
Shooting out the lights
Sturm Ruger is a firearms manufacturer and after Smith & Wesson's beat on both top and bottom line, things look good for Sturm Ruger's earnings on July 31. Analysts have been raising their EPS estimates for the gunmakers over the last few months and Sturm Ruger may be a better buy if it disappoints with increasingly lofty expectations.
It offers a 4.10% yield and a trailing P/E of 11.92 with no debt. Sturm Ruger has had 22.65% revenue growth over the last three years. The stock has outperformed the S&P 500 with a gain of 31% over the last year and that was on top of gains from last year when the gunmakers had so much demand that there were supply shortages.
As Fellow Fool Dan Dzombak notes, the company is shareholder-friendly, paying out a variable dividend that can soar in good times and while lower in bad times, doesn't cripple the company's operations.
Caveats with Sturm Ruger are the same as with Smith & Wesson: headline risk and analysts' predictions of decelerating EPS growth. Both companies have proved analysts wrong over the last two years with applications for background checks for gun permits at all time highs. But, headline risk explains the high short interest at 23.40%
Ruger has a close relationship with Cabela's offering its Cabela's Club members special events at its Ruger Gunsite Academy.
Speaking of Cabela's, it is one of my favorite names and if it had a yield, it would be an almost perfect stock. If you have never gone to a flagship store, I highly recommend it. Maybe take a free archery or sporting class while you're there. Don't forget to try the elkburger.
When this company opens a new store, the event draws thousands and its most recent shareholder meeting has become quite the sensation, too, drawing record attendance.
The stock has been on a tear since 2011 on fears that an Obama re-election would promote action on gun legislation. Since the re-election, gun stocks as well as Cabela's have risen with Cabela's up 84.25% over 52 weeks. It isn't trading at the low P/Es of yore but the forward P/E is only 16.68 with a PEG of 1.12. Even with this astonishing share price appreciation, insiders are still buying, like Board member Reuben Mark who bought 5,000 shares less than a month ago at an average price of $67.65.
The company has some strategic initiatives including its Outpost stores which are half the size of the flagship destination stores. Their Outpost stores make $550 per square foot compared to the huge legacy stores, and are easier to put up as the company expands to more than its 225 stores in the U.S. and Canada. CEO Milner said they will open 10-12 new stores per year.
The company also does a brisk catalog and internet business as well with its private brands with their significantly higher margins.
Off road hi-jinks
Finally, there's Arctic Cat, the snowmobile and ATV maker, which, at a market cap of $603 million, is much smaller than its main competitor, Polaris Industries. Arctic Cat has half the yield at 0.90% of Polaris' 1.80%, but its growth outlook is brighter. It looks undervalued here with a PEG of 0.44 and a trailing P/E of 15.82 and a forward P/E of 12.66.
Its Board reinstated the quarterly cash divided on May 15 and announced a share repurchase worth $30 million. This double vote of confidence should hearten investors on the fence about a lightly covered small cap name.
Its snowmobiles in the winter and ATVs the rest of the year are a popular part of the outdoor sportsman lifestyle. Analysts give the name a five year 20% EPS growth rate compared to a 16.67% rate for rival Polaris.
Which of these you put in your portfolio with pride of place depends on what you're trying to bag: elusive small cap grower like Arctic Cat, lumbering (pun intended) big cap REIT that is Plum Creek Timber, nimble but dangerous Sturm Ruger with its high short interest, or ever more popular trophy, Cabela's, with its loyal customers. Just be careful out there, buy on dips, and don't shoot your eye out.
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AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool owns shares of Arctic Cat and Sturm, Ruger & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!