With the generally gloomy outlook for the economy and consumer spending, many investors are looking for "recession-proof" industries and companies: tobacco, gambling, alcohol, and pornography (you have to find something to do if you lose your job!).But how about golf? The latest issue of GolfWeek asks the question, Is golf recession-proof?
Gordon Dalgleish, president of Perry Golf, told GolfWeek that "We can think of no other consumer-oriented business that is as insulated from the effects of general economic conditions other than beer, cigarettes, and perhaps video games."
Gilford Securities analyst Casey Alexander added that golf is "more recession resistant than other consumer-oriented activities ... A weak economy rarely has much negative impact on overall golf spending, just as a strong economy rarely has a positive effect on overall golf spending."
Whether golf will be completely recession-proof remains to be seen but it seems fair to bet that it will be more resistant to broad economic malaise than most consumer companies. To that end, here's a quick round-up of a few golf-related investments:
Callaway Golf (NYSE: ELY): With over $1.1 billion in annual sales, this is the Big Bertha of the golf equipment industry. It's been mired in a trading range for about 15 years, and may be too big to provide much in the way of upside. Still, this may be a good conservative pick for investors looking for exposure to the golf industry. Sales ticked up 10% in the first quarter, and earnings per share rose an impressive 25%.
Adams Golf (NASDAQ: ADGF): The little OEM that could. This is, I think, by far the best golf industry play out there. That's why I'm long the stock. Buoyed by the strength of its hybrid iron sets, Adams's sales have soared from about $38 million in 2003 to more than $94 million in 2007. The company recently uplisted to the NASDAQ and signed endorsement deals with PGA Tour players Aaron Baddeley and Rory Sabbatini. It's the No. 1 hybrid on the PGA, Nationwide and Champions Tours. The question is whether Adams can keep up with the bigger players like Callaway and TaylorMade long-term. But with its stock trading right around its book value and at about 0.5 times sales, Adams is looking like an excellent buyout candidate.
Fortune Brands (NYSE: FO): An $11 billion conglomerate, Fortune owns brands including Jim Beam, Sauza Tequila, Titleist, FootJoy and Cobra. Booze and golf! What else is there? Furniture and hardware, unfortunately. Brands like Moen and MasterBrand could be very vulnerable to a recession. The nice little dividend may make it worth a look for some conservative investors, but this is hardly a pure-play on golf.
Golfsmith (NASDAQ: GOLF): This one has been a disaster. With 74 golf stores scattered across the country, Golfsmith has been bleeding red ink and is still looking to hire a new CEO. The stock is trading at a tiny fraction of its sales, but should probably be avoided by less aggressive investors.
Aldila (NASDAQ: ALDA): This company makes shafts for all of the big club-makers. Pays a good-sized dividend (and recently paid a big one-time dividend), but it's unclear how strong the company's competitive advantage is. Sales have declined in each of the past two years, and operating income has tanked over that period. Don't let the low P/E ratio fool you: most of that comes from a one-time gain.
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Reader Comments (Page 1 of 1)
4-23-2008 @ 7:31PM
Michael Schneider said...
Golf has been declining in popularity partly because of time pressures and this has been a trend for a few years. It is a good idea to look for undervalued stocks in unpopular industries though I would want to know if an industry is in some danger. I made some money in ALDA a few years ago and have been watching ELY on and off. Could be some interesting plays for summer.
4-24-2008 @ 8:45AM
Michael Schneider said...
I should add that Adams looks like a great pick-- good finances, some insider buying (some selling also) and good recent numbers.