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Ford Motor Company (F), Harley-Davidson, Inc. (HOG): The Auto Sector Is More Than Cars and Trucks

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Recently, I wrote about an alternative way to play automakers with Tata Motors, an Indian based maker of affordable cars and trucks.  However, for those who are not interested in too much foreign exposure, there are few choices in the sector.  Companies like Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) still leave investors with a bad taste in their mouths after the financial trouble they got themselves into a few years ago, and newcomers like Tesla Motors Inc (NASDAQ:TSLA) are still too speculative for long-term investing.  I propose that one of the best vehicle makers to invest in is not a car or truck company at all, but Harley-Davidson, Inc. (NYSE:HOG), the largest American motorcycle manufacturer.

Ford Motor Company (NYSE:F)

About Harley-Davidson

Harley-Davidson, Inc. (NYSE:HOG) is the leading manufacturer of heavyweight motorcycles, and also sells parts, accessories, and clothing.  The company manufactures 32 models ranging in price from just over $13,000 to around $53,000, and the models are grouped into five “families” of motorcycles.

The company has a 55.7% market share in new heavyweight motorcycles in the U.S., however their international business has room for improvement.  Harley-Davidson, Inc. (NYSE:HOG) has stated that their average U.S. customer is a male over age 35 with a household income of about $85,000.

Growth Ahead?

Harley-Davidson’s market share in the U.S. probably isn’t going to change by that much.  Where there is room for growth domestically is if overall motorcycle sales increase as a result of the continuing strengthening of the economy.  Harley-Davidson sold over 303,000 motorcycles in their most successful year, 2008.

Once the financial crisis hit, sales dropped sharply.  Although they have grown every year recently, 2012’s sales of about 250,000 new motorcycles are still far off from the peak.  Motorcycles seem to be extremely dependent on the amount of disposable income in consumers pockets, so as the job market and economy continue to improve, so should motorcycle sales.

Harley-Davidson, Inc. (NYSE:HOG)’s strongest opportunities for growth are in international markets, which currently make up only about a third of the company’s sales.  I think Harley-Davidson will begin to focus more of its marketing efforts overseas, although significant growth in Europe will be delayed until their economic troubles are behind them.

Valuation

My only complaint about Harley-Davidson, Inc. (NYSE:HOG) is that it looks a bit expensive at the moment.  Even though there is rapid growth projected ahead, I think it is a bit too uncertain to warrant such a high valuation.

Currently, shares trade at 18.6 times TTM earnings, a significant premium to both its peers and its own historical average.  The company is projected to earn $3.36 in 2013, and is expected to grow earnings to $3.91 and $4.14 per share in 2014 and 2015, respectively.  This translates to a 15.3% average forward growth rate, which is very nice, if they can deliver on it.

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