It's time to buy this iconic American stock

Forget Coca-Cola, Starbucks or McDonald's -- Harley-Davidson is riding high on its unparalleled brand strength and an improving economy.

By StreetAuthority Aug 1, 2013 5:24PM
Getty RM: 149579585 expires in 2 years
The Harley-Davidson Inc. logo is displayed on a gas tank of a Fat Boy Lo motorcycle
© David Paul Morris/Bloomberg via Getty ImagesBy David Goodboy

Ever since I was a child, I have been fascinated by advertising, marketing and brand logos.

I distinctly remember often enjoying TV commercials and magazine ads more than the actual shows and articles. This near-obsession with brand logos and marketing has been beneficial to my businesses and investing projects over the years.

The main takeaway from my experience has been these three observations about the most successful brands:

1. They evoke a feeling
This is the No. 1 attribute of a great logo. It is also the most difficult to quantify. Soda companies such as Coca-Cola (KO) and PepsiCo (PEP) spend millions attempting to tie their brands to particular positive feelings.

2. They are easy to remember and associate

Iconic brands are easy to remember and associate with the product or service being promoted. Think of the Starbucks (SBUX) mermaid. That image means Starbucks coffee to anyone who sees it. The company was so certain of this fact, it removed the words "Starbucks Coffee" from the logo in 2011. This makes the logo a truly international iconic brand that's beyond written language. The image has become its own language without regard to nations or belief system.

3. They have a loyal following

All iconic brand logos have a hard-core cult following. These self-made brand evangelists spread the word of the benefit and greatness of the brand/logo. Think of Monster Beverage Corp. (MNST), with its green scratches logo. This logo is everywhere, from telephone poles to the back of many vehicles and motorcycle helmets. This logo obsession has gone viral, in Internet parlance -- with the hard-core following spreading the Monster message without pay or direct benefit to themselves.
 
There are many other factors that go into creating an iconic brand or logo, but these three characteristics are universal.

I use this information whenever I am evaluating a potential investment in the consumer space. Simply asking yourself whether a company has an iconic brand can help differentiate short-lived fads from brands that can stand the test of time.

One logo has created such a powerful image that it might the most representative of these three characteristics of any brand in history. This logo is so iconic, its hard-core fans actually tattoo the image onto their bodies. I don't think Coca-Cola or Ford (F) tattoos are too common.

This company's powerful logo signifies freedom, individuality, fearlessness, fun and power. Although it's far from the biggest company around, I consider this timeless logo one of the most iconic ever. Not to mention, the company is setting up to make a great investment.

If you haven't guessed, this iconic brand is Harley-Davidson (HOG). Wherever motorcycles and enthusiasts are found, Harley's iconic logo is prevalent. It's on everything from boots and jackets to pickup trucks and motorcycles.  

Founded in 1903 and based in Milwaukee, Harley-Davidson makes cruising and touring-type motorcycles and operates a financing division that provides insurance and financing to its dealers and customers.

Harley recently announced higher second-quarter profits with an increase to just under $272 million from slightly more than $247 million. This represents $1.21 per share, beating the consensus estimate of $1.18.

Sales rose 3.4%, to nearly $1.8 billion, and operating margin also increased to 21.9% from 19.7% during the same period last year. These increases are a direct result of the company's four-year plan to lower manufacturing costs by union deals and a variety of other changes in the way it builds its motorcycles.

Harley's average rider is no longer the young rebel of yesteryear. The company sells products at steep prices to upper- and middle-class consumers with an average age of 47.

Since the third quarter of 2011, the company has averaged quarterly motorcycle sales growth of 6.4%, and its stock has surged more than 150% since its $10 low in 2009.

A major bullish signal was provided by William von Mueffling's hedge fund, Cantillon Capital Management, which recently purchased about 3.5 million shares for more than $190 million. This makes Harley-Davidson 6% of the fund's total holdings. Before to this quarter, Cantillon owned zero percent of the company. That's a huge vote of confidence.

The technical picture indicates a sharp uptrend from June 24 to July 25, when shares hit nearly $60. The stock has since fallen, finding support at $55.

Risks to consider: Harley's prime competitor is Japan-based Honda Motor Co. (HMC). The dollar-to-yen exchange rate is critical when evaluating the competition. A stronger greenback hurts Honda but could help Harley reduce its international import costs. Other competitive pressures include Polaris, which now owns Indian Motorcycle, the second-oldest American motorcycle manufacturer. While not commonly known for motorcycles, Polaris' newly acquired Indian division -- which is expected to soon start selling motorcycles bearing the Indian brand for the first time since 1953 -- may take some fire away from Harley Davidson. In addition, motorcycle sales in general are closely tied to the economy.

Action to take:
I like this stock right now. The momentum from the solid second quarter, combined with the company's restructuring efforts and improving U.S. economy, should push shares to $65 within 12 months.

David Goodboy does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.


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19Comments
Aug 1, 2013 6:33PM
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Indian has come and gone several times since 1953 and just because Polaris now owns them I don't expect it to be any different this time. Polaris makes snowmobiles and the Victory motorcycle. Not really any new competition here. There's only one Harley-Davidson, not the oldest motorcycle company for nothing.

Aug 2, 2013 7:44AM
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Let me be the one to burst your 'bubble' V_L on the demographics of Harley riders. I've had my 'Fatboy' for 6 years now. I can't believe that you actually posted that stupid comment about a 4 wheeled Harley- Ummmm......HELLO..... THAT'S A CAR! Harley - Davidson makes motor cycles.

(why do we always have to point out the obvious to you)

 

And just for the record, I'm very glad that most 20 something's can't afford a Harley because we have enough immature drivers on the road already- and that's just in cars.

 

And from my observations, not only do you not own a motor cycle, you've never rode one.

Harley Guy said it, but I'll repeat it for you: THERE IS ONLY ONE HARLEY - DAVIDSON !!

 

Aug 2, 2013 10:13AM
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Think the fastest, I ever moved on 2 wheels was 138mph on a CH Sportster back in the 60s-70s.

You gear-heads can correct me on the Model if I'm wrong, because I'm not sure.

 

My buddy use to run in bike classes at drag strips, and can't remember if it was stock or not.

Think it turned 120-130 thru the traps, but got there in a hurry.

 

By today's standard Crotch Rockets are jets on wheels, same when they crash..

I would probably qualify for a Trike, with my back and knees...

And because of age, the only wind in my hair, is with Miss Lilly's car or a Golf cart.

Now I watch the neighbors, ride by on Hogs or others and they beep and wave.

Yeah, I miss it.

Aug 2, 2013 9:18AM
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HD just refuses to ever go away, that is why it never will. Being 57 yrs. old I would not ride again but I park mine in my driveway and watch people looking at something special. I would buy another one if I could. Or if the wife let me.
Aug 2, 2013 10:53AM
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When my brother's children were younger I decided to buy them stock as an investment. For my brother's youngest kid I purchased stock in Harley-Davidson. I had been following the company for a number of years and I thought it would be a good investment. I spent $200.00 and purchased ten shares for him at Christmas time. The following year I made an additional $200.00 purchase, and then I enrolled him in the Harley-Davidson's dividend reinvestment plan. I continued to make additional purchases for a number of year and then stopped.

 

Over the years the stock split, and split again, and split again, and again, and again. I continued with the dividend investment plan and from the original 10 shares I purchased, the small purchases, the stock splits, and reinvested dividend purchases my nephew has over a thousand shares of Harley-Davidson stock.

 

I am very happy for my nephew who is a now young man serving his country in the Army. He has a nice little nest egg in the company and I can only hope the company will continue to prosper. Buying my brother's children stock instead of toys has really paid off for them all.

Aug 2, 2013 11:27AM
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Excellent job and a foreseen idea Mr.52, Everyone should have an Uncle, Aunt or Parents like you..

 

Having not got involved in any Stocks until early 80s, probably because of Parents, old age thinking and Depression ideology. But Mother was a saver. Dad later on.

 

We or I are attempting to build a trust for our Children, that could be used as a retirement supplement much like Soc. Sec....By drawing a set amount per month, quarter or year. And never harming the principle...Believe that's how the Rich got richer.

If they opt out and take their share, they are out...Period.

Wife is much more conservative....And will pass on savings and CDs.

Plus most other assets will just be sold...Hopefully some invested in different ways. 

Aug 2, 2013 3:40AM
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Harley has SERIOUS customer base demographic issues. I'm 53, and my motorcycle days are long gone, got almost killed by cars one time too many. Back in the day, as today, there were two camps of riders -- Harleys and sportbike (primarily Japanese with an occasional Ducati) riders. Young and old, no demographic differences. Fast forward to today -- EVERY younger rider has a sportbike, the only ones you see riding Harleys are older folks. Harley was trying to compete in this market with a Buell sportbike for a while, but gave up on it. Long term, that's a very poor sign for Harley. FWIW, most Harleys I saw when riding were small, rapidly diminishing black dots in my review mirror...
Aug 2, 2013 6:48AM
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See... steerage articles like this need to be banned. Harley has a prehistoric customer base and no product helping transition it's brand beyond the Kool Aid Easy Rider crowd. Do we see the Harley Car-Cycle that gets 100 mpg, tall and 4 wheels like a car but nimble and agile like a bike? How about the Natural Gas Alternative Harley? Can you tell us which Harley a twenty-something working three jobs at Minimum Wage can afford? Like so much BS in America, the powerful Me Generation and First-Tier Baby Boomers have created bubbles of trouble for ancient artifacts like Harley. While enjoying sales fueled by fools either dying on them or of old age with them in the garage... they didn't do squat to be looking ahead when their buyer posse are dead. Harley-- wouldn't touch the stock if you gave it to me. Dead and buried in 5 years from now.
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