There’s Still Gas in the Tank for Harley-Davidson

Stock Exchange gives readers a chance to listen in as Times staff writers James Peltz and Michael Hiltzik debate the merits of individual stocks.

Harley-Davidson (HDI)

Jim: You know, Mike, I’m trying to picture what you would look like riding a “hog.”

Mike: That’s an image to conjure with, isn’t it? I’ve done my share of bombing around the outback and upcountry in Jeeps and off-road vehicles, but the closest I’ve gotten to a motorized two-wheeler is a moped I used to ride on Block Island. So I’m not that kind of guy.

Jim: Maybe so, but a lot of people love Harley-Davidsons, and we’re not talking about the Hells Angels anymore. Lots of celebrities ride Harleys, including Jay Leno and AT&T; Corp. Chairman Mike Armstrong, and many baby boomers ride these big, loud motorcycles as well.

Mike: As a matter of fact, two of the most striking things about this company are how the median age of Harley buyers, and their median income, have changed over the years.

Jim: Good point. Harley shed its reputation as the bike for renegades a long time ago. The average age of a Harley buyer is now 44, up from 34 a decade ago. And the buyer’s average household income is nearly $74,000, which helps because Harley’s bikes can cost up to $20,000.

Mike: This is also a company that came back from the brink.

Jim: In the early ‘80s, this Milwaukee-based company was getting killed by, among other things, imported Japanese motorcycles. And it was big news back then when Harley went to the Reagan White House and got import tariffs slapped on the Japanese bikes. But that gave Harley room to recover, and it’s been speeding ahead ever since.

Mike: Harley also knows it’s got cachet, a quality image, and does everything it can to keep building on that image. Although the Japanese and a couple of domestic manufacturers are trying to come up with products to appeal to the same market, Harley has a big advantage.

Jim: Then there’s its stock. You might have never guessed, but since 1990 this stock has skyrocketed more than 2,000%, which is nearly 10 times the gain of the bellwether Standard & Poor’s 500 index over that period.

Mike: Harley has also split several times, it’s up another 75% in just the last 12 months and now trades in the high 50s.

Jim: And it’s not only baby boomers yearning to be free that are driving this company; it’s getting a nice lift from the overall strength of the economy. But the question is, what happens now? What’s down the road, so to speak?

Mike: I knew there was a “but” lurking in there somewhere. I don’t know about you, but I think this stock still has a ways to go.

Jim: I do too. I’d buy it.

Mike: I’m glad to hear that. Harley has done very well in some of the fundamental things that a growing company has to do. It’s got its profit margins up and its costs down, it’s bringing out new products, and it’s always looking for ways to expand those product lines further.

Jim: Plus, Harley has invested heavily in new plant and equipment to produce its array of bikes more efficiently and profitably.

Mike: Right, so as long as the economy remains strong, this is a good company to own.

Jim: Agreed. In fact, this is a play on the economy and disposable income, and both of those are in good shape. Yes, the stock sells for a pricey 35 times earnings, but this company shipped about 151,000 motorcycles last year, triple its production of a decade ago, and I look for it to ship at least 160,000 in 1999. All of that’s going to give Harley’s earnings and stock even more horsepower.

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James Peltz (james.peltz@latimes.com) and Michael Hiltzik (michael.hiltzik@latimes.com) can also be reached at Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.