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Chasing Value: Will Harley-Davidson (HOG) fade like Levi Strauss?

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Yesterday I posted Chasing Value: Harley-Davidson (HOG) looking on down the road and actually bought a few shares. Late in the day I received a comment from one of our frequent readers whose opinions I have grown to respect, although he can be a little harsh at times. This reader raised some interesting points I thought worth some consideration. He wrote:

  • "I don't like the stock. I see it as a luxury item for aging Baby Boomers. The ones who always wanted one, (or who) already own one. The younger generations aren't interested. I also think you're making a classic mistake when you speculate by saying "if it returns to its former level within the next few years."

He is correct that there is no assurance a stock will return to past glory. It is entirely possible that a company may fade away, just like Levi Strauss did when competitors stormed its castle from all sides with cheaper products, fancier products, variations on a theme and jeans made by other strong brands that extended their product lines into Levi's historic stronghold.

Similar things are happening now to Harley-Davidson (NYSE: HOG) as Honda Motors, Yamaha, Kowasaki and Suzuki take on "style and look" of the classic American "HOG" ride. They do it cheaper, with less effort and even borrow American icons like eagles and flags to promote their machines. They also offer a smoother ride in many cases, as Harley clings to the past and continues producing motorcycles with what it calls "edgy" (read "rough") rides. It is also true that younger motorcycle enthusiasts do not appreciate the Harley mystique in the same way as Baby Boomers have.

Having given this reader his due, it is important to look at the broader picture. First, if he and I and all of you understand these issues, certainly the exceptional management at Harley are well aware of them too and are making plans to adapt to a changing world. HOG continues to develop new products, polish the brand, and expand into new markets. It is including women, minorities, and youth in all of its business plans. It is also expanding into foreign markets worldwide. If you lived in the Ukraine could there be a more pronounced way of making a statement to the Russians than riding around on a classic American icon? I don't think so.

Another facet to expanding markets for motorcycles in general is the rising cost of fuel. Still another is the traffic congestion in most major cities. If you have traveled at all in Europe or Asia you cannot have missed the huge number of motorbikes and scooters everywhere and it will happen here too, eventually.

I agree that Baby Boomers have been a prime market for Harley over the past decade, but this is not a fading crowd. This generation is just entering retirement age and has more financial capital than any generation before it. Many will not be able to resist the lure of buying a Harley-Davidson or a Winnebago to tour the country.

For myself, if I had the space, my fantasy would be to buy a bike to put in the living room, on top of a polished granite floor, with tons of chrome details and custom paint. A Harley is every bit as beautiful as many works of art I have seen and anyone who thinks otherwise is mistaken. Clearly, they have hypnotized this Baby Boomer, and I will not be retiring for a long time.

Therefore I have no concern as to whether Harley-Davidson will return to its recent highs, given the continued opportunity with Baby Boomers and new opportunities with women, minorities, youth, foreign markets, the energy conservationist and people fed up with traffic congestion. I would think almost everyone falls into one or more of these categories. My reader thinks I have made a classic mistake, but I think Harley-Davidson will remain a classic!

To find potential opportunities and verify my track record read Chasing Value or Serious Money.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He is on the advisory board of Internet start-up CircleBuilder.com.

[Photo -just-jen-]

Reader Comments (Page 1 of 2)

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Last updated: November 22, 2009: 04:55 AM

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