The New Defensive Stock of the Decade
Let’s look at why investors are looking at defensive stocks right now.
When times get tough, investors start to eye traditional defensive companies like Johnson & Johnson (JNJ:NYSE), Clorox (CLX:NYSE), Pfizer (PFE:NYSE) and Procter & Gamble (PG:NYSE). Utility and energy companies like Exelon (EXC:NYSE) and Exxon Mobil (XOM:NYSE) also attract investors when the future looks murky.
Tobacco and alcohol giants like Phillip Morris (PM:NYSE) and Diageo (DEO:NYSE) tend to come into favor, too, because consumers take up more bad habits when they are experiencing hardships in a down economy.
Usually defensive companies like these increase in popularity after the market has had a bullish run and a slowdown seems like the next step of the economy. Investors see these defensive stocks as a “safe haven.” But even though they are considered defensive, these stocks can and will drop in value.
In fact in 2009, many of these defensive stocks lost nearly as much of their value as the major market indexes! That’s not really defensive, is it?
What About America’s Situation Now?
We are supposedly emerging from a recession, but economic data doesn’t look so rosy. Do you really want to put your money into traditional defensive sectors like food and energy, or even “vice” companies that only seem to be safe havens?
What if I told you about a “defensive” stock that could outperform traditional safe havens? And what if I told you that you could buy this stock at a 10% discount?
I want to tell you about a company that creates an extremely strong, positive bond between citizens that is tough as nails. It provides an escape from stress, encourages creativity, individuality and is a symbol of freedom and the American way of life still yearned for around the world.
Oh and by the way, it is making TONS of money, offers a small dividend and is somewhat “green.”
Harley-Davidson, a Defensive Alternative
In this marketplace, you have to think outside the box. I always say you should invest in what you know. Since I have been riding, repairing and building motorcycles since I was five, I can tell you that this is an area I know a lot about!
I think of Harley-Davidson (HOG:NYSE) as a slightly older, tanned Apple computer, wearing leather chaps with a couple tattoos. How’s that visual for ya?
Harley-Davidson has created an obsessive culture that reveres, collects and lives to ride its products since 1903. I’ve ridden all over North America and Europe, and I can tell you that the obsession is still strong.
When I ride to Sturgis, Laconia, Daytona, Myrtle Beach, Austin and Laughlin, Nev., cities that host the largest bike rallies in the U.S., the majority of the bikes there are Harleys… and no two look the same.
They are dependable, high quality, sexy and command respect! That is hard to come by when you’re a biker.
Harley-Davidson does have competition and from time to time fads and custom bike builders gain popularity, but Harley still manages to reinvent itself time and time again. Its tried and true machines remain not only relevant, but dominant.
Recently, the company has streamlined its business to improve profitability and just reported a 10% rise in retail sales (year over year) along with a 74% rise in 1Q profits compared to last year.
Many are looking to Harley-Davidson for continued growth.
Middle-Class Stress Relief
The world’s middle class is growing at a breakneck pace. More men and women around the world now have disposable income to buy “toys.” You see, my belief is that we all need an escape from time to time to keep ourselves sane. Spending thousands on a five-day vacation is nice… but spending fifteen thousand on a machine that can provide you with hundreds of mini vacations over the years makes more sense to me.
It’s much easier and more practical to hop on your Harley after a bad day at work and take a spin, rather than to plan a full-blown vacation.
They are not all fun and games; motorcycles also offer practical, pleasurable daily transportation and are much easier to park in dense areas.
Did I mention they get great gas mileage?
Harley-Davidson knows that its bikes are a mini vacation on two wheels and the company is going after customers globally.
According to several sources, Harley is looking to open dealerships in Ahmedabad, Chennai and Kolkata, India, by the end of 2011, offering premium, inexpensive bikes. It already operates high-end dealerships in Delhi, Mumbai, Bangalore and Hyderabad. India, like China, is fast creating a middle class.
Harley also operates its own financing arm, bringing would be riders one step closer to the rumbling of their V-twin engines.
Taking a Ride
The motorcycle may be one of the last youthful freedoms left on Earth (at least in my eyes). I cannot tell you what it’s like to experience the world on two wheels in the open air, taking in the sights and smells of the countryside. I’ve experienced unusual kindness, generosity and wonderment from most of the world on my Harley.
It’s a feeling that you can only get by being on one, and I believe that once you do, you are hooked for life. Harley knows this too and markets the “lifestyle” heavily.
Over the past couple weeks, the market has been correcting. But Harley has been moving higher and has broken ABOVE its 200-day moving average. I call that pretty darn defensive.
It may not be a traditional defensive stock, but Harley is worth a look. It’s a stock that I believe will thrive through these uncertain times.
Of course if there is a complete meltdown, no stock will be safe, but that is the risk you take as an equity investor. By the way, I showed Smart Investing Daily readers how to spot key sell signals.
Buy HOG for a 10% Discount
As an options trader, I would be remiss if I didn’t show you a cool, simple tactic that you can use to buy HOG for $34.75, when it’s trading at $38.25.
For the option traders out there…
The cash secured put is a great way to acquire stock. If you are bullish on HOG, you can sell the August 36 put for $1.25. This means that you are obligated to BUY the stock at $36 a share until August 19 and getting paid $1.25 per share to do so.
Every put contract you sell obligates you buy 100 shares, so remember to set aside 100 x $36 or $3,600 for each put. The cool thing is that the $1.25 credit you get is yours to keep! So if you are buying stock at $36 and getting $1.25 (per share) you are only paying $34.75 for a share of Harley!
If the stock manages to stay above $36 by the time these contracts expire on Aug. 19, you simply keep the $1.25 for a 3.5% return! If the stock is below $36 on that date, you will be the proud owner of the stock.
But again, while everyone is buying it at $38.25, you’ll own shares of Harley at $34.75, an automatic gain of 10%!
– Jared LevySource: Taipan Publishing Group
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